JLL research suggests retrofitting as a strategic solution to fall in European commercial office construction

Europe’s office market is experiencing significant supply constraints with construction down 24 per cent since 2020 and heading toward decade-low levels in Q1 2025. This has created critical space scarcity, particularly in Central Business Districts (CBD) where vacancy rates average just 3.6 per cent. For example, Paris’ Golden Triangle has only 0.4 per cent new-build availability, while London’s West End submarkets face sub-1 per cent vacancy for newly completed space.

In response, retrofitting has emerged as a strategic solution, accounting for a record 33 per cent of 2024 completions. JLL’s analysis of Amsterdam, Berlin, London, Madrid, Munich, and Paris shows 38 per cent of submarkets can achieve yields on cost of 7.5 per cent or higher through strategic retrofits.

Key market dynamics:

• CBD areas have increased their share of take-up from 20 per cent to 28 per cent (2020-2024).
• Central locations adjacent to CBDs offer 18 per cent discounts compared to prime areas.
• Upgrading buildings can deliver rental premiums of 9-31 per cent across different cities.
• Retrofit costs typically range from 3-12 per cent of asset value.
• Payback periods can be as short as 10 years in some submarkets.

As new construction falls to a decade low, availability of high-quality office space in core locations will come under severe pressure. Vacancy rates are projected to decrease through to 2029, forcing occupiers beyond traditional prime locations.