JLL identifies Europe's next wave of office investment hotspots driven by innovation

A new analysis from JLL reveals that continued migration to and investment in a wider array of European cities from innovation-focused talent and companies offers compelling opportunities for office investors and signals some of the beneficiaries for the next wave of institutional capital deployment.

Cities including Copenhagen, Amsterdam, Brussels, Dublin, Frankfurt, and Munich are emerging as particularly attractive destinations for office investors in a global context. Among markets with $1.5 to $6 billion in sales over the past three years, these European cities stand out for their exceptional ratio of innovation to deal velocity.

The research demonstrates a clear correlation between innovation talent concentration and office investment liquidity. Markets scoring highest on innovation metrics generate 3.3 times more sales activity than lower-scoring counterparts, while the top 10 cities by innovation score have captured more capital markets volume than the next 28 combined.

"Many cities overperform in innovation relative to commercial real estate investment due to differences in the depth of domestic capital pools," said Cameron Ramsey, Senior Director, EMEA & UK Capital Markets Research, JLL. "These markets are likely to be some of the next beneficiaries of deployment as institutional investors, pension funds, and developers look to diversify their allocations geographically.”

The investment opportunity is amplified by a critical undersupply of premium office product. Only 11% of global office space was built since 2020, with this figure falling to approximately 9% in the Bay Area and anchor cities.

The supply-demand imbalance is particularly acute in new-build CBD space. Paris and London report new-build CBD vacancy rates of just 0.9% and 1.1%, respectively. In many cities across Europe, this shortage is driving substantial rent growth at the top of the market as competition intensifies for blocks of desirable space.

Prime rents in key global cities have surged to more than $1,280 per square meter on average, while their competitors command an average $837 per square metre. This pricing power creates compelling value propositions for investors acquiring premium office assets in high-growth innovation markets.

The research identifies distinct patterns of talent migration that directly impact office demand. 'Reinforcer' markets—including Amsterdam, Copenhagen, and Stockholm—have registered net migration rates 3.8 times higher than the Bay Area and anchor cities.

'Welcomer' cities such as Bristol and Valencia have achieved net migration rates of 5.2% over the past three years, demonstrating their ability to attract talent through lower housing costs, cultural presence, and favourable policy environments.

"The ubiquity of innovation has fundamentally altered not just where growth clusters are occurring, but also how it interfaces with the property market," according to JLL research. "Rather than driving widespread expansions of corporate footprints in 'hot' markets and submarkets as in the past, innovation is now deeply intertwined with the process of urban refinement and evolving ways of living and working.”

The analysis highlights the importance of co-location between research institutions and capital pools. While the Bay Area and anchor cities account for approximately 34% of global AI research by publication volume, cities like Oxford, Geneva, and Cambridge produce more than 360 AI publications per million residents—nearly double the 181 per million generated by both the Bay Area and Boston.

"Better linking these hives of research with deeper capital pools domestically, as well as gaining additional capital for needed office, lab, educational, and residential development, will be essential to maintain competitiveness," according to JLL research.

"Institutional investors and pension funds seeking portfolio diversification should evaluate markets where innovation capacity exceeds current investment levels," said Chris Staveley, Head of EMEA Office Investment, JLL. "The gap between innovation performance and commercial real estate activity in these cities represents a strategic opportunity to capture value ahead of broader market recognition."

As the construction pipeline globally cools on the back of elevated interest rates and viability challenges, vacancy outside of select pockets is unlikely to meaningfully relax.

"Select developers willing to take opportunistic risks in cities where the planning process is 'retrofit-first' are likely to benefit from occupier pressure, particularly in European cities where new supply is slower to respond to stronger demand and where structural vacancy is substantially lower and more stable," Chris added.

"Few indicators are as distinctly aligned with innovation as liquidity and the presence of investment-grade commercial real estate," the research concludes.