Europe’s office market remained resilient in the first quarter of 2026 despite weaker economic growth, rising energy costs, and uncertainty linked to the US-Iran conflict, according to a new Savills report.
Office leasing across Europe reached 1.8 million square meters during the quarter, slightly below the five-year average as occupiers took longer to finalize deals and increasingly opted to renew existing leases rather than relocate.
Demand Shifts Toward Prime Space
Leasing activity remained uneven across the region. Dublin, Budapest, and Amsterdam outperformed historical averages, while Germany and France continued to weigh on overall market activity amid weaker domestic economic conditions.
Despite slower transaction volumes, demand for high-quality office space in central business districts remained strong. Average prime rents rose 4.3% year-over-year, led by London City, Warsaw, and Munich.
Vacancy rates across Europe held steady at 9.4%, though availability of top-tier space in many city centers remained extremely limited, helping support further rental growth.
Development Pipeline Continues to Shrink
New office construction remains constrained as developers face higher costs and uncertain market conditions.
Office completions are expected to remain flat at 3.5 million square meters in 2026, roughly 28% below the 2022 peak. Activity is forecast to decline further in 2027 as fewer projects have been launched in recent years.
Developers are increasingly seeking pre-leasing commitments before starting new schemes, while many are favoring refurbishment projects over ground-up construction.
Rising Costs Pressure New Projects
Higher energy prices and shipping disruptions have pushed construction costs higher across Europe. Steel prices climbed during the first quarter, adding pressure to project economics already strained by elevated financing costs and uncertainty around future asset values.
As a result, investor appetite for speculative office development remains limited, with many developers delaying projects until market conditions improve.
Economic Uncertainty Clouds Outlook
The broader economic backdrop has weakened since the start of the US-Iran conflict. Higher energy costs have contributed to softer growth forecasts across Europe, while businesses remain cautious about hiring and expansion plans.
Even so, limited new supply and strong competition for premium office space are expected to keep prime vacancy rates low and support further rental growth through 2026 and beyond.
For landlords and asset managers, the shortage of modern, high-quality office space is creating opportunities to reposition older buildings and capture demand from occupiers seeking premium locations.
