Office

We expect a further year of gradual improvement in office leasing levels, supported by rising office-based employment and clearer signs of new working practices becoming settled. Vacancy rates are likely to start edging downwards in more cities, which represents a positive signal for developers. In the short-term, however, occupiers’ choice of well-located, high-quality buildings will remain tight.

Key Takeaways

1. Supported by an increase in office-using employment, and higher and more stable office attendance rates, we expect a further year of modest recovery in leasing levels. We anticipate that leasing levels will rise by 5–10% through 2025, edging closer towards historic averages.
2. The need for companies to provide high-quality working environments is expected to drive further polarisation in markets. As overall availability levels move down more decisively through 2025, vacancy spreads between prime and poorer quality buildings will also widen further.
3. While demand pressure is expected to grow slowly, the scarcity of good, well-located buildings should support some uplift in prime rents in most markets. As values stabilise and cost pressures ease, conditions for new development look set to turn more favourable.

Slow recovery in leasing to continue

Leasing expected to rise 5-10%

The office leasing market in 2025 will be driven by a range of competing forces. On the positive side, a gradually improving economic backdrop, some increase in office-using employment levels, and higher and more stable office attendance rates. The headwinds include the trend towards portfolio downsizing and efficiency improvements, and occupier caution stemming from perceived risk of over-exposure to long lease commitments.  

So far, this has led to growth of approximately 5% in leasing volume through three quarters of 2024, and we expect a very similar number for the year as a whole. 2025 looks a little more positive and we expect leasing volumes to rise by 5–10% over the year, which would still be slightly below the ten-year average (Figure 13).

Sector and size trends

It will be important to analyse sector and size patterns of leasing at a local level in 2025.

Large transactions have been scarce in recent times, and the dominant portfolio trend remains towards downscaling. At the same time, the pace of economic recovery may not be sufficient to re-stimulate start-up numbers.

Mid-size deals look set to dominate, while growth in demand from sectors like manufacturing and public services produces a more balanced sector leasing pattern.

Figure 13: Office Leasing Volumes, Europe, 2015-25

Figure 14: Perceptions of scope to raise office attendance levels

New working arrangements to become more embedded

Headcount forecasting and space planning are still challenges for major occupiers. Current and target levels of office attendance, and quality of office user experience, therefore, are important metrics for occupiers in assessing their space needs.

Attendance levels are rising. Over 60% of companies report average office attendance of 41–80%, up by more than ten percentage points from the previous year, and a significant number of occupiers expect to succeed in pushing this higher. This will be supportive of office demand.

At the same time, occupiers’ growing preference for high‑quality space will drive further polarisation in markets. Companies are under more pressure to ensure that they are offering employees high-quality space as part of their Employee Value Proposition. Vacancy spreads between prime and poorer quality buildings are set to widen, and owners will have increasing reason to consider the feasibility of refurbishment.

Supply side set to tighten

Increases in vacancy slowed sharply in 2024, with the aggregate European vacancy rate up by barely half a percentage point in the year to Q3. Vacancy rates in a number of major cities – including Madrid, Amsterdam, and Warsaw – already look to have peaked or begun
edging down.

We expect a broadening of this trend toward steadily lower vacancy through 2025. This is driven by higher leasing activity, a lack of recent development, and companies’ growing preference for high quality space – a segment of the market where vacancy is already far tighter.

Prepare for the next development cycle

These factors should start to generate interest in new development. Other factors include values stabilising as yields begin to fall, scarcity of good space, and slower growth in construction costs, creating more favourable conditions for initiating development. New development starts are on the increase in several cities, and some will see higher completions in 2025 – including London, Berlin, and Barcelona. While occupiers’ choice of good, well-located buildings looks set to remain tight in the short-term, there are emerging signs that this will ease further out.

Prime rents to rise more slowly

The market shifts we anticipate are enough to generate overall nominal prime rental growth across Europe of 2.5–3% in 2025. Most major office markets are expected to see a moderate rise in rents in 2025, generally of between 2–4%. For most of the larger cities, this represents a slower rate of growth than in 2024, and for markets that saw big rent spikes in 2024, such as Paris and Munich, a more pronounced slowing in growth. Some cities, including Amsterdam, Berlin, and Dublin, are likely to see strengthening rental growth in 2025.

The office sector is not immune from a divergence of macroeconomic performance from our baseline scenario (see Economic Outlook), but the range of outcomes is quite narrow, particularly in the short-term. A downside scenario would produce weaker rental growth in 2025 (0.5–1% lower than the base case) and more persistent differences beyond this. Upside differences from the base case are more muted and short-lived.

Figure 15: Forecast prime office rental growth (%) 2024-25, selected markets