European Office Sector Outlook 2024

INVESTING IN A GREENER FUTURE

With the growing emphasis on sustainability, the adoption of hybrid working models has led to the emergence of ‘green leases.’ Green leases refer to conventional office occupancy leases that allow landlords and occupiers to work together, incorporating commitments to operate the building in alignment with environmentally sustainable principles, including carbon emissions, waste reduction, and adherence to energy efficiency regulations. It's important to highlight that these clauses within green leases are not completely legally binding; rather, they serve as mechanisms to motivate both parties to fulfil their responsibilities. Green leases are also gaining prominence as property owners aim to safeguard the enduring value of their new real estate developments.

However, we are now seeing more investors targeting value-add prospects, aiming to capitalise on the European real estate sector's faster repricing. The lower level of transactions in a number of markets has led to slower price discovery, particularly for the office sector. But we are beginning to see quicker price adjustments in more liquid markets such as in the UK and the Netherlands. Our forecasts now show that office yields across Europe will have the largest outward movement with yields moving out on average by +166 basis points (bps) over 2022-2023. ⁵ European Commission: Indoor air pollution - new EU research reveals higher risks than previously thought ⁶ MSCI: London and Paris Offices: Green Premium Emerges ⁷ RICS: Minimum Energy Efficiency Standard We are now seeing more investors targeting value-add prospects, aiming to capitalise on the European real estate sector's faster repricing. "

Investment volumes across Europe have been falling for seven consecutive quarters since the first quarter of 2022. In the period Q1-Q3 2023, overall investment activity decreased by 52% compared to the same period a year ago. While no sector remained unaffected by this slowdown, the office sector has been particularly hard hit and falling the most, with a 61% reduction as investors pause on purchases and assess their strategy towards the sector. The office sector accounted for just 29% of all investment over the last twelve months, its lowest share on record. Fewer office properties were traded than during the GFC.

10 OFFICES OUTLOOK 2024

THE TIDE IS TURNING GREEN | 11