European office market seeing green shoots

Europe’s office market has been significantly impacted by the rise of hybrid working, economic challenges and an accelerated rate of obsolescence in recent years. It’s led to rising vacancy and a subdued investment market. While many of those challenges still exist, there are now reasons for cautious optimism.

Better economic outlook stimulates leasing

With economic growth rates generally being revised up, interest rate cuts underway and lower inflation, the outlook is improving. Office leasing activity is also on an upward trajectory, thanks to a growing pipeline of large deals and improving levels of office re-entry.

JLL latest office data points to an upward movement in European office leasing on an annual basis (+7%), to 2.2 million sqm in Q2 2024. Occupiers are increasingly trying to avoid delays in their decision-making and secure suitable space in highly competitive markets. In some cases, tenants who initially decreased their office footprint, have since added more office space to meet their return-to-office requirements.

Growing employment to support office market

Hiring intentions remain positive in Europe as unemployment continues to edge downwards.

Even though employment levels are expected to slow in the coming years, most new jobs will be created in office-based sectors, especially digital and professional services. European cities’ office-based employment growth is expected to outpace overall employment and GDP forecasts, with Dublin (+2.1% yoy), Luxembourg (+2% yoy) and Madrid (+1.7% yoy) expected to see the fastest growth, according to data from Oxford Economics.

JLL’s latest The Future of Work Survey 2024 also found that commercial real estate decision makers feel positive about employment prospects, with 64% of respondents expecting increases to their headcount between now and 2030. Attracting and retaining talent will remain a top corporate priority. Occupying high-quality, amenitised offices, with strong ESG credentials, will be vital to the recruitment process.

Shifting towards more in-person work

While hybrid work remains prevalent across Europe, the office clearly retains a central role in the workplace. According to JLL, 85% of firms have a policy of at least three days of office attendance a week, while 43% expect this number to increase by 2030.

A number of high-profile organisations, from tech and healthcare to professional services, are moving towards five-day week mandates and abandoning hybrid work policies altogether.

The benefits of face-to-face collaboration and networking cannot be understated; however, lengthy, expensive commutes continue to disincentivise workers from leaving the comforts of their own homes.

Companies looking to improve attendance will not only need to look at ways to subsidise commutes, but also entice workers with a state-of-the-art, sustainable, and well-located office space, as well as a range of perks to go with it.