Market Radar Europe: 2026 real estate and economic forecasts

London office market faces shortage amid rising demand and strong investment

European office deals rebounded in 2025, with 21 transactions over GBP 100 million in central London, nearly double the previous year’s total.

The recovery is driven by a supply shortage in key cities like London, where demand remains high despite changes in working patterns. Notable deals include Invesco’s sale of its Capital 8 complex in Paris for EUR 900 million and Blackstone’s purchase of the Centre d’Affaires Paris Trocadéro for EUR 700 million.

With the market recovering, investors are focusing on well-located properties with strong amenities in top cities. The improved interest rate environment and returning capital have boosted transaction volumes, though the supply of prime office space remains tight, driving demand and rental growth.

In London, a shortage of high-end office space is forcing companies like Accenture, Vodafone, and EY to extend leases or refurbish existing offices instead of relocating. The post-Brexit building slump and rising fit-out costs are making it harder to find new premises, with Knight Frank predicting premium office vacancy rates could drop to zero by 2028.

Construction activity remains limited due to factors like Brexit and the pandemic, and many businesses are staying put to avoid the costs and disruptions of moving. Some are investing in retrofitting their offices as the supply of office space stays tight.

Despite the space shortage, investor confidence remains strong. SIGNAL and W.RE have acquired a City of London office building, while Japanese investors are drawn to Edge’s landmark project. Major developments like the Salisbury Square office revamp and the 75 London Wall redevelopment continue to attract significant investment, reinforcing London’s position as a top global real estate hub.

European economic resilience despite geopolitical strain

Eurozone inflation dropped to 2% in December 2025, meeting the European Central Bank’s (ECB) target for the first time in months, down from 2.1% in November.

The ECB maintained its benchmark interest rate at 2% for the fourth consecutive meeting, with no rate cuts expected in 2026. Alongside the drop in inflation, core inflation decreased to 2.3%, and services inflation fell to 3.4%, signalling easing price pressures.

The euro remained stable at USD 1.169 after the ECB’s decision, with analysts maintaining a cautious outlook for the eurozone due to ongoing geopolitical risks.

Europe’s economy performed better than expected in 2025, avoiding a recession, but geopolitical tensions continue to impact productivity, investment, and demand. 

Trade barriers and reconfigured global supply chains are putting strain on businesses, which are increasing stock levels and seeking alternative trade partners. However, these strategies come at a significant cost.

Governments are likely to intervene more in the market, with calls for greater corporate resilience amid growing geopolitical instability. As these costs continue to rise, the need for global cooperation to mitigate risks becomes increasingly vital.

Meanwhile, the Bloomberg 2026 Investment Outlook is broadly optimistic, with AI-driven growth expected to lead equity markets. However, risks such as inflation, high asset valuations, and geopolitical uncertainty remain. A potential US dollar weakening could support emerging markets.

This is further bolstered by Brazil’s Vice President, Geraldo Alckmin, expressing optimism regarding the ongoing Mercosur-EU trade deal, despite delays. He also highlighted ongoing progress in other trade negotiations, including with the UAE, India, and Mexico, reinforcing the GRI Institute’s capital outlook for 2026.

Europe’s property market faces rapid transformation in 2026

Europe’s property market is entering a period of significant change, driven by regulatory pressures, land scarcity, and financial innovation.

Sustainability is a key focus, with tougher carbon emission and energy efficiency regulations pushing property owners to invest in retrofitting. Those who fail to comply risk obsolescence in an increasingly eco-conscious market.

As land availability tightens and approval processes become more prolonged, developers are increasingly converting existing buildings for new uses, including transforming office blocks into residential or mixed-use spaces.

At the same time, fractional ownership and crowdfunding are opening the door for smaller investors to take part in larger projects, making property investment more accessible.

These shifts are creating a property market that demands flexibility and adaptability, with success no longer solely dependent on scale.
 

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Look out for a new edition of the GRI Institute's Market Radar Europe next week!