The only inward movements were Oslo (-15 bps) to 4.50% and Stockholm (-10 bps) to 3.90% following strong domestic Nordic buyer demand, along with Bucharest moving (-30 bps) to 7.10%, as all other markets remained stable.

From a fair value perspective,* average prime European office yields remain in fairly-priced territory, with a -7% capital value adjustment required, largely reflective of risk-free rates increasing during Q4 2024. Madrid, Amsterdam and Barcelona appear most attractively priced on this metric, given rental growth prospects and pricing relative to historic levels.

Savills data indicates that 2024 European office investment volumes reached approximately €41 billion, an 18% increase year on year. The annual increase was observed across several markets, particularly Norway, Sweden, Italy and Spain, albeit from a historically low base.

James Burke, Director, Global Cross Border Investment at Savills, says: “Savills latest investor sentiment survey shows improved confidence in the office sector, as many investors are increasingly willing to deploy beyond ‘beds and sheds’ and into both core and traditionally non-core geographies. Following falling real estate values and rising equity prices since 2022, many multi-asset investors are now under-allocated to real estate which we expect will support increased bidding activity through the year.”

Mike Barnes, Director in Savills European commercial research team, says: “Occupier demand for European offices remains strong, with an 8% year on year increase in take up. Many occupiers have gone full circle in their remote working patterns, and have found that they no longer have enough desk space, supporting an upsizing trend.

“Occupiers are after good quality space but are not necessarily willing to pay headline rents, and as a result, they are now beginning to look 3-4 years ahead of their lease events given the shortage of good quality stock. Average European prime rents grew by 4.8% during 2024, well ahead of forecasts, which is presenting value-add investment opportunities for asset managers to bring good quality stock back to the market.”

-ends-

Notes to Editor:

*Methodology: Savills European Office Value Analysis compares the fundamental (calculated) yield relative to current market pricing across 20 European markets, covering London-City, Stockholm, Manchester, Lisbon, Oslo, Berlin, Paris CBD, Dublin, Amsterdam, La-Défense, Prague, Hamburg, Madrid, Barcelona, Munich, Brussels, Warsaw, Frankfurt, Milan and Bucharest.

An investor must be compensated for bearing the risk of investing in real estate over sovereign bonds- the risk premium. The calculated yield is derived as the current risk free rate plus 2017-21 average office risk premium, discounting for nominal rental growth (source: IPF, Savills), inflation (source: Oxford Economics) and depreciation across each market. The fundamental yield represents a hypothetical yield, assuming a fully liquid market and the investor is fully hedged against currency risk.

Given the inverse relationship between yields and capital value, we use the following definitions for fair-pricing;

- Market capital value >10% above fundamental capital value, we consider over-priced

- Market capital value within 10% of fundamental capital value, we consider fairly priced

- Market capital value >10% below fundamental capital value, we consider under-priced