The European office real estate market is experiencing a notable resurgence in investor interest after a challenging period of repricing in 2023.
This repricing has significantly impacted office assets, particularly in Germany, the Anglo-Scandinavian region, and the USA. However, it has also created opportunities for investors to acquire these assets at discounted prices.

According to the latest analysis by CBRE, office investments in Europe have become the most active sector, with a 1% increase in investment volumes, totaling €18.7 billion in the first half of the year.
Rob Wilkinson, CEO of AEW Europe, highlights that the repricing phase for prime offices has concluded, making this asset class attractive once again.
He identifies two types of potential active buyers: generalist and long-term investors seeking trophy assets at discounted prices, and opportunistic investors looking for high returns by adapting distressed assets to modern tenant needs or converting them for residential or mixed-use purposes.

The capital value of office assets has decreased by 26% across Europe, compared to a 16% decline for all other sectors combined.
Despite the low sentiment in the sector due to significant losses, Wilkinson predicts that offices will yield the highest total returns.
He emphasizes that now is an opportune time to invest, as the greater the decline in valuations, the stronger the recovery will be.
However, debt remains a challenge, with many properties' debt exceeding their asset value.
Negotiations between debtors and lenders are ongoing, and banks, particularly in Southern Europe, are better capitalized, reducing the risk of financial shocks.

Rasheed Hassan from Savills notes that the COVID-19 pandemic accelerated the divergence between prime and secondary offices.
Prime offices, characterized by efficiency, technology, and prime locations, have seen minimal value declines, while secondary offices have halved in value.
The average vacancy rate in Europe is 8%, but it exceeds double digits for peripheral offices, whereas prime offices in cities like Milan have a vacancy rate below 3%. The limited construction of new offices could lead to a chronic shortage of prime office spaces in the coming years.

James Burke from Savills points out that the delivery of new office spaces in 2023 dropped by 23% year-on-year to 3.3 million square meters, the lowest in five years.
A 30% increase is expected in 2024, but the rising costs of construction and financing will likely result in a shortage of Grade A spaces by 2027/2028.
Consequently, developers may demand a 10% increase in prime office rents to make new projects viable.
By the end of 2023, prime office yields in European capitals are expected to range between 4% and 5.25%.

Marie-Laure Leclercq De Sousa from JLL highlights the growing disparity in demand and financial performance between sustainable prime offices and outdated secondary ones.
This presents both opportunities and challenges for investors.
The next decade will see significant conversions of office spaces to other uses, but high costs and bureaucracy could hinder investment.
In Paris, for example, 5 million square meters of office space remain unleased, raising questions about who will fund their conversion.
By 2030, new prime office projects in major European cities will meet only 46% of the demand.

In Italy, the office sector leads in investment volumes, with €960 million invested in the first half of 2024, accounting for 27% of the market.
Milan remains a key focus for investors, with strong private capital presence and limited repricing.
Rome is also attracting growing interest.
The sector's fundamentals remain robust due to the persistent mismatch between supply and demand, driven by a lack of prime products.
Prime yields in Milan and Rome are 4.5% and 4.75%, respectively, with potential compression expected in the latter half of 2024, aided by a less restrictive monetary policy.