European Office Real Estate Transactions Plunge to Lowest Level Since 2009

European office real estate transactions plummeted to their lowest level since the global financial crisis during the third quarter, dropping by one-third year-on-year to 8.8 billion euros, according to MSCI data. The sharp decline comes amid surging sovereign bond yields and renewed interest rate hikes by central banks across the continent, which have dampened prospects for property valuation recoveries.

"The third quarter was one of the slowest in the history of the European real estate market," noted Tom Leahy of MSCI. Mark Swetman, CEO of London-based real estate firm LS Estates, stated that while strong activity is expected for premium offices, investors are currently adopting a "zero-risk" approach. This cautious stance is driven by concerns over project sustainability amid climbing inflation and rising insolvency rates among contractors and subcontractors. "The prevalent phenomenon is delays and surging costs due to inflation," Swetman noted, adding that projects are routinely missing their completion targets.

Transactions across all commercial real estate sectors—excluding nursing homes—tumbled to 43 billion euros, marking the slowest activity level since 2013, aside from the third quarter of 2023. While demand for prime locations remained robust, the broader market has struggled following aggressive monetary tightening by European central banks since 2022. Recent interest rate increases, aimed at curbing inflation fueled by Middle Eastern geopolitical tensions, have further constrained market activity. The British commercial real estate market demonstrated relative resilience, limiting transaction declines to approximately 10%, whereas Germany and France experienced severe slumps with transaction volumes dropping by nearly half compared to the previous year.

In France, borrowing costs have surged amid protests over the cost of living and political tensions ahead of the 2027 presidential election, sparking investor concerns over government debt management. According to Leahy, property owners who previously delayed sales in hopes of a return to pre-2022 valuations may now be forced to price their assets realistically to secure transactions, though the market continues to face significant headwinds.