Summary:
Lisbon's office occupancy increased by 40% in the first half of 2024.
European office market reached 1.6 million square meters of occupancy in Q2 2024, a 9% increase.
Investment transactions in European offices dropped by 21% year-on-year, totaling €14.1 billion.
The banking and financial sectors led leasing activity with 25% of the market share.
High-interest rates are restricting investment transactions across Europe.
Significant Growth in Lisbon's Office Market
According to the latest European office research by Savills, office occupancy in Europe reached 1.6 million square meters in the second quarter of 2024, marking a 9% increase compared to the same period last year. This brings total absorption for the first half of 2024 to 3.7 million square meters, up 5% from the first half of 2023, although it remains 7% below the average of the last five years.
Investment Trends and Market Dynamics
Investment transactions in European offices during the first half of 2024 totaled €14.1 billion, reflecting a 21% decline year-on-year. The UK continues to lead the activity, accounting for 29% of investment volumes in European offices, which is 24% above the average of the last five years.
Lisbon's Remarkable Performance
Cities that reported occupancy rates above the five-year average in the first half of 2024 include Prague, Lisbon, London, Barcelona, and Madrid, with Lisbon showing a 40% increase. Frederico Leitão de Sousa, head of offices at Savills Portugal, noted that this growth indicates Lisbon's appeal for companies with ambitious growth plans, suggesting that the market will continue to evolve due to various high-quality projects in the pipeline to meet increasing demand.
European Office Vacancy Rates
Although Europe saw a slight increase in unoccupied office rates from 8.6% to 8.8% in Q2 2024, primarily due to the return of some secondary spaces to the market, major markets like Paris and key German cities maintain lower availability rates, staying below 6%. The average rent for prime offices in Europe increased by 2.4% over the past year.
Sector-Specific Insights
In terms of sector absorption, the banking, insurance, and financial sectors accounted for 25% of leasing activity in the first half of 2024, an increase from 17% compared to the same period in 2023. The services sector was the second most active but saw a decrease to 22% from 28% in the previous year, while the technology sector accounted for 13%.
Christina Sigliano, EMEA head of global occupier services at Savills, explained that the overall leasing activity across Europe is up compared to last year, driven by a scarcity of suitable stock. Many tenants are opting to renew existing leases rather than seeking new spaces that do not meet their requirements.
Investment Challenges
High-interest rates continue to limit investment transactions in European offices, with the first half of 2024 seeing a 21% decline compared to last year and a 60% drop from the five-year average of €36 billion. The average yield for prime offices in Europe remained stable at 4.9% during Q2 2024, although some markets like Vienna and Paris La-Défense experienced slight movements in yields.
Despite these challenges, the general office market in Europe remains in fair value territory, with Oslo and Madrid identified as the most undervalued markets relative to sovereign yields. Conversely, cities like Lisbon, Bucharest, and Copenhagen showed minimal movement in prime yields compared to sovereign yields, maintaining a stable difference on a quarterly basis.
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