Finance
Europe Hit by Prime Office Supply Crunch as Construction Slumps
Published by Global Banking & Finance Review®
Posted on March 24, 2026
3 min readLast updated: March 24, 2026
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New office construction across Europe has plunged to a decade low even as demand and prime rents surge—worsened by soaring energy costs amid the Middle East conflict.
Europe Faces Prime Office Supply Crunch as Construction Hits Decade Low
European Office Market Trends and Challenges
By Iain Withers
Construction Slowdown and Supply Crunch
LONDON, March 24 (Reuters) - Construction of new office space in Europe has slumped to its lowest in a decade, even as rents in prime locations hit record highs, research shows, deepening a supply crunch that is forcing many occupants to stay put.
The conflict in the Middle East poses further risk to the sector's outlook as rising energy prices could add to inflationary pressure, according to a report by property agency Cushman & Wakefield.
Post-Pandemic Office Demand
After emptying out during the COVID-19 pandemic, offices from London to Paris are filling up again as companies compel staff to come in on more days. That has helped underpin 20 straight quarters of rental growth for prime offices in Europe, according to the research.
However, space under construction fell to 10.1 million square feet at the end of last year, the lowest level since 2016, the report said, citing the impact of high construction and financing costs.
London's Unique Market Pressure
Demand for new office space in London is at over 11 million square feet, about 20% above the long-term average, according to separate research from agency Knight Frank, which also predicted a looming supply crunch. Nearly a third of occupiers will end up staying put due to a lack of choice or high prices, it added.
"You can’t turn the tap on overnight for supply," Brad Hyler, co-president of Brookfield's real estate group, told Reuters at the Canadian investor's recently completed central London tower, the 35-storey One Leadenhall.
Geopolitical Risks and Market Outlook
The Middle East conflict could weigh on property deals and financing in the short term, Hyler said, but added this was too early to predict and Brookfield still expected a gradual recovery.
Record Rents and Investment Trends
RECORD RENTS
Benefits for Developers and Tenants
Developers like Brookfield that have delivered new office towers post-pandemic have benefited from a dearth of competition. One Leadenhall's anchor tenant, U.S. law firm Latham & Watkins, recently decided to take up extra space in the building, including the top floor at 160 pounds ($214) per square foot - thought to be a record for the City of London financial district - a source familiar with the matter said. Brookfield declined to comment.
The tower - which rises above the City's historic Leadenhall market - is now fully let.
Investment and Quality Trends
Investment in European office construction totalled 52 billion euros ($60 billion) in 2025, up 14% on the prior year but still roughly half the 10-year average, according to Cushman & Wakefield.
Flight to Quality and Vacancy Rates
A flight to quality office buildings by occupiers meant a record 52% of all space leased across Europe, the Middle East and Africa last year was the highest quality, the research showed.
The vacancy rate for this premium space fell to 3.5% at the end of last year, while the overall vacancy rate remained steady at 9.8%.
($1 = 0.7468 pounds) ($1 = 0.8630 euros)
(Reporting by Iain Withers; Editing by Emelia Sithole-Matarise)
Key Takeaways
- •Office space under construction in Europe hit its lowest level since around 2016–17, intensifying a supply crunch amid rising demand and record rents (Cushman & Wakefield, Savills)
- •Occupiers are increasingly unable or unwilling to relocate, with demand outstripping supply—London demand topping long‑term averages (Knight Frank)
- •The Middle East conflict is driving energy prices sharply higher, adding inflationary risks to construction costs and property financing (IEA, AP, Le Monde)
Frequently Asked Questions about Europe hit by prime office supply crunch as construction slumps
1Why is Europe experiencing a prime office supply crunch?
Europe faces a supply crunch due to a decade-low in new office construction, driven by high construction and financing costs.
2How have office rents in Europe been affected?
Rents for prime office locations have reached record highs after 20 consecutive quarters of growth, especially in cities like London.
3What impact does the Middle East conflict have on the office sector?
The Middle East conflict raises energy prices, adding inflationary pressure that could further affect property deals and financing in Europe.
4Are companies moving into new office spaces or staying put?
Nearly a third of occupiers are staying put due to limited new office space and high prices, according to recent research.
5What is the vacancy rate for premium office spaces in Europe?
The vacancy rate for premium office spaces fell to 3.5% at the end of last year, while the overall vacancy rate stayed at 9.8%.
