Savills research reveals Madrid and Paris Central Business District (CBD) office markets currently present the most attractive investment opportunities across Europe from a fair value perspective. The international real estate advisor attributes this compelling positioning to positive real rental growth forecasts coupled with decreasing risk-free rates, enhancing the appeal of prime office assets in these locations.
The firm reports that average European prime office yields compressed by 3 basis points to 4.89% during the recent quarter. This tightening was primarily driven by significant yield movements in London West End (-25 bps to 3.75%), Vienna (-15 bps to 4.85%) and Brussels (-5 bps to 4.75%), indicating renewed investor confidence in select European markets despite broader economic uncertainties.
"Contrary to what some observers might have expected given the current economic landscape, we are seeing continued motivation amongst both buyers and sellers in the European real estate market. Investors remain committed to executing the strategies they have put in place in order to take advantage of European markets that have repriced and which are seeing higher levels of prospective sales. In particular, we are observing a number of German and Spanish buyers targeting core European offices and nascent interest from North American private equity groups in the same asset class," explains James Burke, Director, Global Cross Border Investment at Savills.
"From an occupational perspective, European office markets continue to improve. Take up rose by over 8% year-on-year in 2024 and vacancy rates made their first inward movement of the cycle. As a result, the IPF Consensus average five year European office rental growth forecasts have risen from 2.1% to 2.4% per annum as tenants continue to compete for the best space. There is a belief among investors that real rental growth prospects are back," adds Mike Barnes, Director in Savills European commercial research team.
The findings come at a crucial juncture for institutional allocators reassessing European office exposure, with pricing discrepancies between markets creating tactical entry opportunities for well-capitalised investors. The research highlights a potential inflection point in the European office investment cycle, particularly significant for cross-border investors who can now identify relative value plays between markets with diverging yield profiles but improving occupier fundamentals, potentially accelerating transaction volumes in the latter half of 2025.
People mentioned:
- James Burke - Director, Global Cross Border Investment at Savills
- Mike Barnes - Director, European Commercial Research Team at Savills
Companies mentioned:
- Savills - International real estate advisor
- IPF (Investment Property Forum) - Provider of consensus forecasts cited in the research
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