London, United Kingdom. Construction of new office space in Europe has dropped to its lowest level in a decade even as rents in prime locations reach record highs, tightening supply and prompting many occupiers to stay in place.
Construction drops as demand and rents rise
Offices across Europe that emptied during the COVID-19 pandemic are filling again as companies require staff to attend workplaces more frequently. Cushman & Wakefield said this has supported 20 straight quarters of rental growth for prime offices in Europe.
The report said the amount of office space under construction fell to 10.1 million square feet at the end of last year, the lowest level since 2016, citing high construction and financing costs.
London market signals supply constraints
Separate research from Knight Frank put demand for new office space in London at more than 11 million square feet, about 20 per cent above the long-term average, and also warned of a supply crunch. Knight Frank said nearly a third of occupiers will end up staying put because of limited choice or high prices.
“You can’t turn the tap on overnight for supply,” Brad Hyler, co-president of Brookfield’s (BAM.N) real estate group, told Reuters at the recently completed One Leadenhall tower in central London.
Middle East conflict adds uncertainty
Cushman & Wakefield said the conflict in the Middle East poses additional risk to the sector’s outlook, as rising energy prices could add to inflationary pressure.
Hyler said the conflict could weigh on property deals and financing in the short term, while adding it was too early to predict and that Brookfield still expected a gradual recovery.
New developments benefit from limited competition
Developers delivering new office towers after the pandemic have benefited from a lack of competing supply. One Leadenhall’s anchor tenant, US law firm Latham & Watkins, has decided to take additional space in the building, including the top floor at 160 pounds ($214) per square foot, which a source familiar with the matter said is thought to be a record for the City of London financial district. Brookfield declined to comment.
The 35-storey tower, which rises above the City’s historic Leadenhall market, is now fully let.
Investment levels below long-term average
Cushman & Wakefield said investment in European office construction totalled 52 billion euros ($60 billion) in 2025, up 14 per cent from the prior year but still about half the 10-year average.
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