London, 29 October 2026 — EBM Newsdesk Analysis — By Katie Winearls
Europe’s office market has ground almost to a halt. Deals have fallen to their lowest level since the global financial crisis, according to the Financial Times, as higher borrowing costs make it harder for buyers to finance purchases and sellers refuse to accept lower prices.
The slump stands out against the wider property market. Total European real estate investment reached €100.1bn in the first half of 2026, down 7% on a year earlier, according to MSCI. But office activity was still running at around half the levels of the previous property cycle. In Britain, completed office deals had their weakest first half on record.
Debt Costs Bite
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SubscribeThe biggest problem is the price of money. The European Central Bank raised its deposit rate to 2.25% in June, and long-term borrowing costs have climbed sharply in the global bond sell-off, with yields hitting levels not seen since 2002.
Property deals depend on borrowed money. When financing costs more than the rental income a building produces, the numbers stop working. Buyers demand lower prices to compensate, owners who bought at the peak refuse to sell at a loss, and the gap between the two leaves the market frozen.
Offices have also been the worst-performing sector. They returned just 3.6% a year to March 2026, the lowest of any property type, according to Aberdeen Investments.
A Tale of Two Markets
The headline figures hide a sharp divide. Across Europe, office vacancy is above 14%, driven largely by outdated buildings in poor locations. But in the best city-centre districts, space is scarce: vacancy is about 6% in central Paris, below 5% in central Amsterdam and around 3% in Madrid.
New supply is drying up too. Office space under construction has fallen about 35% to a ten-year low, which should eventually push up rents for the best buildings. Investors are becoming highly selective, favouring Madrid, Munich, Amsterdam and Barcelona, while out-of-town business parks face a structural decline.
The AI Question
A newer worry hangs over the sector: artificial intelligence. If companies need fewer white-collar staff, they will need less office space. With the AI layoffs now arriving across banking and tech, landlords of ordinary office blocks face the prospect of permanently weaker demand, on top of the shift to hybrid working since the pandemic.
Property Under Pressure
The pain is spreading across European real estate. Germany’s biggest residential landlord, Vonovia, faces a potential €8bn hit from Berlin’s plans to seize private flats. In France, which slipped to fourth in Europe’s property investment rankings behind Spain, political uncertainty over Marine Le Pen’s economic plans is adding to investor caution.
Where This Goes
Europe’s office market won’t recover until borrowing costs fall or prices drop far enough to tempt buyers back, and neither looks likely soon. The real story is the widening split. Modern, energy-efficient offices in the centres of Madrid, Paris and Munich will hold their value and even gain as new building dries up. Ageing blocks in secondary locations face a much bleaker future, squeezed by high debt costs, hybrid work and now AI. Expect more forced sales, more write-downs and more old offices converted into homes or hotels. For investors with patience and cash, the bottom of the cycle may be the best moment to buy the best buildings. For everyone else, the pain has further to run.
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