Consolidation creates opportunities
The future of the office is clearer and predictable amid the ongoing office market consolidation. New workplace strategies are being developed and implemented dedicated to individual industries and corporate cultures.
This requires better offices in vibrant prime locations and creates opportunities. As a result, investor sentiment is improving for Grade A product. Core capital is active, albeit highly selective, prioritising resilient income and credible ESG pathways, while value-add capital constantly monitors for distress and pricing dislocation.
Better offices wanted
The quality threshold has risen. Hybrid working is now a structural feature with only a modest pullback, but offices remain the central location for work. Occupier demand has become more exacting and now concentrates on Grade A product with clear specification, excellent connectivity and strong amenity provision. Assets that combine strong sustainability credentials with locations that attract and retain talent drive asset occupation. Also on the capital side, investors darling are those future-proof assets in vibrant CBDs and locations that support live-work-play. Caution is still exercised with large-sized office investments, unless it is a landmark office in an outstanding location, which continues to signal selectivity.
Developers have started to deliver in selected markets
Better offices are sought after by occupier and investors even in the current subdued economic backdrop. Developers are increasingly responding to present demand–supply imbalances. New office construction activity is picking up relative to recent years in some markets, predominantly in the form of re-developments and refurbishments of existing stock. Supply richer CBDs going forward are considered to be London West End, Paris, Berlin and Frankfurt’s banking district, while supply constraints will remain most pronounced in Munich and Madrid (Chart 1). But overall the vacancy rates, for Grade A space, in particular in the core CBDs, start from a pretty low base and purely speculative construction is rare. Supply constraints are considered to persist in the prime locations in most major office markets in Europe while stock selection remains key for investors. However, the strong growth in rents seen in recent years is likely to slow down in some markets due to increased supply, such as in Paris, for example.
Chart 1: Office supply in major European CBDs
Sources: CBRE, Savills IM (Nov 2025)
Considerable income growth potential can be leveraged
Overall, there is sound upside on cash-flows for Grade A offices expected. Still, investors who buy Grade A assets in outstanding locations benefit from re-pricing and stable income progression. Occasional mispricing will create interesting entry options if more distressed deals arrive. Opportunities still exist to create Grade A through repositioning to capture strong rent reversion as a result of the substantial market rental growth in recent years.
The private credit case opportunity for offices
Private credit strategies can preserve debt investors’ capital and capture enhanced returns by financing the repositioning of lower quality assets to best-in-class without taking the equity risk. Lending against re-priced assets provides a substantially lender relative to the recent past. Loans written today can withstand market-wide peak-to-trough declines of more than 50% and still sustain their full returns through investing in European office strategies1. With the reduced risk in real estate lending as a result of rebased capital values, investors could be forgiven for thinking returns are also lower. In fact, it is quite the opposite.
Positioning for 2026
Investor allocations to offices will remain below historical norms, yet the asset class retains a clear role within diversified real estate portfolios. Performance will hinge on rigorous asset selection and disciplined underwriting. Today’s market offers selective investment opportunities where pricing has reset and income growth is supported by specification, location and ESG credibility in the core segment as well as for asset repositioning strategies. Outperformance will rely on disciplined stock selection and a proactive approach to value creation: targeted capex to create Grade A, rigorous asset management to capture rent reversion, and thoughtful credit structuring that aligns milestones, risk and return.
1-Savills IM – Private Market Opportunities: The Case for Real Estate Debt
