Thursday, 11 June 2026
Europe’s office sector is entering a period of increasing divergence, with modern office buildings in central business districts expected to outperform ageing secondary stock as limited supply and rental growth support value recovery, according to Catella’s latest Office Outlook report.
The research highlights a widening gap between prime assets in core locations and older buildings facing rising obsolescence risks. While uncertainty remains around hybrid working patterns and the long-term impact of artificial intelligence on office demand, Catella argues that the sector continues to offer investment opportunities for investors focused on asset quality and location.
According to the report, constrained development pipelines, elevated construction costs and financing challenges are limiting the delivery of new office space across Europe. At the same time, increasingly complex refurbishment requirements are reducing the ability of older buildings to compete with modern stock.
As a result, the supply of high-quality office space in many central business districts is becoming increasingly scarce, supporting occupancy levels and rental growth. Catella notes that prime office rents across Europe have increased by an average of 6.5% annually since hybrid working became widespread in 2020.
“The office market is no longer moving as one asset class. We are seeing a structural divergence between assets that can deliver durable income growth and those facing growing obsolescence risk,” said Petra Blazkova, Head of Group Research and Strategy at Catella Group.
Catella argues that this divergence has created pricing inefficiencies across the market. While modern CBD offices generally benefit from stronger fundamentals, they have experienced value declines similar to those of secondary assets in recent years, creating potential opportunities for investors seeking exposure to prime locations.
The report suggests that as market conditions stabilise, prime office assets in central locations could benefit from improving values and stronger liquidity, while secondary offices continue to face pressure from weaker tenant demand, higher vacancy rates and increasing capital expenditure requirements.
“Investors should focus less on the question of whether to invest in offices and more on which offices to invest in,” said Daniel Gorosch, Head of Corporate Finance Europe at Catella Group. “Success will depend on identifying assets that can benefit from supply constraints, occupier demand and active asset management.”
The report also points to improving investment activity across the sector. Office transaction volumes increased by 19.5% over the past 12 months, reflecting a gradual return of investor confidence. Activity has been particularly concentrated in central business districts, where liquidity remains strongest and pricing has become more transparent.
According to Catella, the combination of constrained supply, rental growth and improving transaction activity is creating selective opportunities for investors, particularly within value-add and refurbishment strategies focused on prime urban locations.
