European office and London residential markets face downturn

The European office market has experienced a significant slowdown, with transaction volumes reaching their lowest levels since the global financial crisis. This stagnation is driven by rising borrowing costs following interest rate hikes by the European Central Bank, which have created a gap between buyer expectations and seller valuations.

While total European real estate investment fell 7% in the first half of 2026, the office sector has been particularly hard hit, yielding only 3.6% annually through March 2026. A divide has emerged between outdated buildings, which contribute to a continent-wide vacancy rate above 14%, and prime city-center districts in Paris, Amsterdam, and Madrid, where vacancy remains low.

In the United Kingdom, the residential flat market is also under pressure. Average prices for inner London flats have dropped by approximately 8.1% over the year to August, marking the largest annual decline since 2009. This slump is attributed to the departure of small landlords, higher mortgage interest rates, and changes to tax relief and eviction laws. Higher stamp duty surcharges and increased borrowing costs continue to impact both investors and first-time buyers.