Office vacancy rates continued to increase in Q1 2025, however with less new supply and an increasing number of office conversions, overall vacancy is projected to come down from its 9% peak mid-year 2025 to 7% by 2029 according to AEW.

Signs are beginning to emerge that CBD (Central Business District) office rental growth since 2020 is pricing out occupiers, with more affordable non-CBD submarkets looking more attractive due to value for money.

Hans Vrensen, Head of Research & Strategy Europe at AEW, said: “Emerging trends, particularly the impact of generative AI, are shaping the recovery of the European office market. According to Oxford Economics, AI is expected to create higher-value jobs while automating routine tasks, benefiting cities like London, Paris, and Berlin. Additionally, 30% of office transactions in early 2025 involved conversions to other uses, a trend accelerated post-COVID that will help reduce vacancies and increase rents. The gap between CBD and non-CBD locations is closing, with rental growth forecast at 3.5% per year in five CBD submarkets, similar to the 3.3% expected in 14 non-CBD submarkets.”

In the first four months of 2025, office conversions represented more than 30% of total office transactions, up from 17% in 2024. Both up from the post-financial crisis average of 8%. Among markets, the highest 2020-24 shares of office conversion transactions have been recorded in Frankfurt & Madrid, with the lowest in Paris and Munich.

Average 2025-29 prime rental growth is expected to reach 2.8% p.a. across all 61 covered European office submarkets.