European office occupancy is largely back to normal: Colliers

Office occupancy rates have largely returned to pre-pandemic levels of 65% on average across Europe where vacancy is steady at 8.1%, according to Colliers.

However, the region’s office vacancy figure masks the varying performance within countries, the firm stated in its latest Global Insights & Outlook Office Report.

The standout strong performing locations so far in Q2 were London’s West End (6.8%), Amsterdam (down to 6.1% from 6.5%), and Brussels (7.7% from 8.3%). Other strong locations included Paris, where vacancy rose by only 0.6% to 8% while in Berlin rates increased from 3.1% to 3.7%.

“The pricing of office assets is moving in sync with key macro factors such as inflation and interest rates, globally. It is also adjusting to market fundamentals where there is a huge divergence in the factors at play,” said Colliers’ head of global and EMEA capital markets research Damian Harrington. “Within each region, there is also great diversity in performance and fundamentals across local markets.”

APAC predominantly mirrors EMEA with vacancy around 10% and occupancy averaging 80%. In contrast, North America rates are sticking at 50% or less. Longer travel times and more comfortable home working environments support this dynamic, Colliers stated.

Coupled with weak occupier demand, vacancy rates have climbed to 16%+ on average, and landlord incentives to support rents continue to be stretched.

Prime rents across Europe are increasing, particularly for higher-quality space and assets that are ESG compliant.

“We are seeing pressure to repurpose space that doesn’t meet contemporary demands as a growing proportion of buildings face obsolescence,” said the firm’s head of global and EMEA capital markets Luke Dawson.

“This is driving a shift in value-add plays across key markets, especially where high importance is placed on ESG, such as the UK and Australia,” Dawson said.

Interest rate hikes have forced yields/cap rates out having a negative effect on capital valuesover the past 12 months.