European Office Sector Outlook 2024

QUALITY OVER QUANTITY

The office still plays a prominent role as employers embrace hybrid working. The primary office and/ or flex space are critical functions in the way we work. The needs to socialise and collaborate with co-workers are key factors employees like about the office environment across EMEA, according to C&W’s Experience per Square Foot TM (XSF) survey⁴. Additionally, the ability to establish a boundary between work and personal life, along with alignment with the corporate brand, hold significant value. In the competitive landscape for talent, it's crucial for occupiers to provide appealing spaces that strike the right balance. Offering flexible areas, collaborative spaces, private zones, and a supportive environment for staff well-being is crucial. This is not merely an ambition but a driving force behind corporate real estate decision-making.

Leasing of Grade A space, which has not been previously occupied, now represents over half of leasing activity. Whilst overall demand has shrunk across 16 key European cities over Q1-Q3 2023, demand for Grade A space has shown greater resilience. Grade A leasing is down 6% from 2.6m sqm to 2.4m sqm, compared with the same period of 2022. In contrast, demand for non-Grade A space has dropped by 17% over the same period (from 2.9m sqm to 2.4m sqm). Whilst the amount of space occupiers require might be less, the focus on quality is paramount. This bifurcation in the market will remain entrenched for centrally located, sustainable, well-connected buildings, expected to attract the most demand.

This aligns with our perspective on high-quality buildings where top rents are attained. As a result, we have seen upward revisions to prime office rents for 2023, with prime rental growth expected to average 4.5% across Europe, compared to 3.3% previously. We do anticipate potential challenges in the next 18-24 months due to the relatively modest decrease in demand, leading to a moderation in rental growth rates in the medium term. ¹ The net change in total occupied space over a certain time period ² The sensible ‘option’: building in growth flexibility in offices ³ Empty Spaces and Hybrid Places, The Pandemics Lasting Impact on Real Estate, McKinsey Global Institute, July 2023 ⁴ Rethinking Irish Real Estate

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OFFICE PRIME RENTS IN EUROPE

Whilst the amount of space occupiers require might be less, the focus on quality is paramount.

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

-5%

Source: Cushman & Wakefield Research Growth from 2019 Q4 to 2023 Q3

6 OFFICES OUTLOOK 2024

THE TIDE IS TURNING GREEN | 7