Large leasing transactions drive European office recovery

European office markets are showing signs of a gradual recovery.

Office take-up in the region has remained relatively stable year-over-year, increasing by 3%, according to JLL data.

Meanwhile, market sentiment is improving, with an uptick in office viewings. Most markets have now likely reached the bottom of the cycle and are beginning to recover.

Large transactions (over 2,500 sqm) are playing a significant role in the recovery, particularly in Germany and the UK.

Germany’s five major cities saw an 18% year-on-year increase in large transactions in the first nine months of 2024, despite overall leasing volume increasing by only 1%. Munich stands out, with a 126% rise in large transaction volumes compared to the previous year, with notable growth in submarkets such as Osten, Norden and Umland-Ost.

In the UK, leasing activity across London suggests rising confidence among occupiers. The vast majority of take-up has been for new or extensively refurbished spaces, supporting larger space requirements. This is evidenced by the third quarter’s 31% year-on-year increase in large transactions, with year-to-date volumes up 6%. Growth is concentrated in areas such as London’s City Central, Shoreditch and Fitzrovia districts.

Conversely, in France, Paris is lagging in expansionary growth, as large transactions declined by 23% year-on-year in the third quarter, and volumes for the first nine months of 2024 fell 11% on the same period in 2023, due to limited market supply, especially in central locations, which has put downward pressure on deal sizes.

Despite the decline in larger Parisian spaces being leased at a city-wide level, some locations showed solid growth through the first nine months of the year. Standouts include the 18^th, 19^th and 20^th arrondissements, which saw a four-fold year-on-year increase in large space volumes, driven entirely by tenants from the retail sector.

From an industry perspective, the banking and finance sector is the primary driver for large spaces across most European markets, accounting for 30% to 50% of leasing activity. Government sector occupiers are also significant in Berlin and Frankfurt, while professional services are key for Munich and, alongside banking and finance, London. The technology sector remains active in Paris.

Overall, the increase in large transactions is signalling the office sector’s recovery, indicating growing confidence among major occupiers and underscoring the continued importance of offices, albeit with evolving requirements.

The trend is particularly beneficial for developers who have faced challenges in launching new schemes. An increase in large transactions offers a more stable demand outlook, potentially easing access to finance for new projects. While the recovery is not uniform across all locations, the overall trajectory appears positive, with large deals emerging as a key indicator for potential new development activity that will be crucial, especially beyond 2026.