Office completions in Europe fell by 32% year-on-year to 3.3m sq m last year – the lowest level for five years, according to the latest data from Savills.
The company expects a 30% year-on-year increase in completions to 4.3m sq m in 2024, followed by a 3% fall to 4.2m sq m in 2025.
Delivery of office stock has been negatively impacted by a number of different factors, such as a shortage of labour and construction cost increases of circa 50% since 2019.
Savills said completion dates had been pushed out as a result, with 33% of office stock scheduled to complete in 2023 being pushed back to 2024/25.
Mike Barnes, associate director European research at Savills, said: “The total volume of speculative European office space in the pipeline has fallen by 21% year-on-year, from 5.7m sq m to 4.5m sq m, dampening any potential increase in vacancy rates. Over the last two years, the speculative development pipeline as a percentage of existing stock has fallen from 3.1% to 2.1%. As occupier demand gradually recovers over the next 12 months, we expect the supply of Grade A space to gradually decline and prime rents to continue growing.
“Budapest (4.8%), Lisbon (4.5%) and Barcelona (3.9%) have the highest proportion of speculative space set to complete by end 2025, as a percentage of total stock, although we expect much of this space will be absorbed as leasing markets remain buoyant and occupiers compete for best-in-class office stock to reduce their Scope 3 emissions.”
James Burke, director, European capital markets and global cross border investment at Savills, added: “Development starts have dropped significantly across Europe over the last year which could result in an undersupply of Grade A space by 2027/2028. All things being equal, it may be that developers will require prime office rents to rise by a figure in the region of 10% in order for new schemes to look viable.
“However, our analysis shows that, in real terms, European office rents have actually fallen by 10% over the past three years and are therefore accounting for a lower proportion of a company’s total operational costs. This may mean that tenants have more headroom to digest higher rents.”
