European Office Market

Cross-border demand and investor activity European office investment is seeing a meaningful recovery in cross-border buying, with SCPIs, Norwegian, Japanese, Middle Eastern and CEE-based buyers all stepping up activity beyond their five-year averages. Even as headline Q1 2026 volumes dipped slightly year-on-year, cross-border flows actually increased. Geopolitical instability in the Middle East may paradoxically accelerate this trend, pushing private family office capital toward the relative safety of Western European cities.

Debt markets under pressure but functioning Banks are lending against prime CBD offices, supporting liquidity for larger deals — illustrated by notable transactions in Barcelona and Paris. However, the Middle East conflict has pushed swap rates higher, and lenders are beginning to tighten criteria, with average all-in debt costs rising 60bps to 4.7% in Q1 2026. European NPL ratios have broadly improved, though fundraising remains hard and a handful of open-ended funds have suspended redemptions, which could release further stock to market later in the year.

Cautious but constructive outlook Occupational fundamentals are solid — prime rents grew over 4% last year amid a persistent undersupply of quality space — but higher steel prices and existing tariffs are pushing the development pipeline back to at least 2027. Investors are wary of capex burdens on older stock, though repositioning acquisitions in 2025 signals growing appetite for refurbishment plays. Distress remains limited, sellers are holding firm on pricing, and while prime yield compression is likely, most expect it to be delayed until Q4 2026/Q12027 given interest rate expectations.