Grapevine

UK leads resurgence in European office investment

Europe's divided recovery

The U.K. real estate market was the first in Europe to undergo a significant contraction following its peak in 2022. However, the early conclusion of the July general election — along with the Bank of England's initial rate cut — have brought some clarity to the market and added steam to the rebound, primarily within the capital, analysts said. "London is leading the way a bit, partly because it repriced earlier and quicker and more significantly," Kim Politzer, head of research for European real estate at Fidelity International, told CNBC over the phone. Higher returns have partly driven that uptick, with average annual office yields in London rising to above 6% of property value this year, according to MSCI data. That compares to around 4.5% in Paris, Stockholm and German cities, such as Berlin and Hamburg. The rebound is now seen filtering into other markets as the European Central Bank continues its rate cutting cycle, reducing debt loads and boosting liquidity.

"One of the biggest things that's been holding back liquidity in the European real estate market has been interest rates and financing," Marcus Meijer, CEO of Mark, told CNBC's "Squawk Box Europe" on Thursday. "A downward path on interest rates is going to start to open that up," he added, pointing to positivity over the next 12 to 18 months. Ireland and the Netherlands, which often closely follow the UK's trajectory, are now showing momentum, Savills said. Solid economic growth and higher office occupancy rates in Spain, Italy and Portugal also point to signs of strength. "Southern Europe is looking particularly robust from an office take up point of view," James Burke, director in Savills' global cross border investment team, said. In France and Germany — which have been battling political flux and lackluster growth, respectively — the recovery has yet to flesh out. Tom Leahy, head of EMEA real estate research at MSCI, said that was partly due to an ongoing "gulf in price expectations" between buyers and sellers in these countries. "It's as wide as it's ever been. The markets are very illiquid at the moment," Leahy said over the phone, noting that further repricing could be expected.