A new lease of life for vacant offices

(October 2025) | Real estate conversions, especially offices, are emerging as one of the key trends in Europe’s real estate market. In the first four months of 2025, conversions accounted for over 30% of total office transactions by floor space, up from 17% in 2024 and from the post-global financial crisis average of 8%. Driven by devaluations, refinancing difficulties and more flexible change-of-use regulations, office conversions to other uses (including residential, student accommodation, hotels, logistics and self-storage) offer owners the opportunity to protect value and liquidity while representing a more sustainable alternative to demolition. Frankfurt and Milan recorded the strongest growth in office conversions in the periods 2008-2019 and 2020-2024, while London and Munich showed only modest increases.

In 2024, total European office investment volumes reached €43 billion (+1% year on year), but remained 53% below the 15-year average. In the first quarter of 2025, investment stood at €8 billion, down 10% year on year, with offices representing a record low share of 21% of total transactions. Several large, core investments confirm market bifurcation, while more than 40% of fund managers are expecting to see a capital value increase over the next 12 months. Sustainability considerations are becoming increasingly important: over 70% of lenders now exclude assets that fail to meet ESG criteria or lack a conversion plan, while 57% offer better lending terms to those achieving environmental or social targets. Incentive-based mechanisms are prevalent, but disincentive-based measures – where applied – tend to be more effective as they are linked to regular monitoring.

Large numbers of offices in Italy and across Europe are being converted to student accommodation, housing and hotels with the aim of reducing vacancy rates. While demand remains high for buildings located in central business districts (CBDs) or strategic, digitally connected areas that meet ESG criteria, there is virtually no commercial interest in outdated, peripheral or poorly connected offices.

According to the latest AEW Office Report (Increase In Conversions Expected To Benefit European Office Market Recovery), Europe’s main office markets recorded an increase in the share of office conversions from 2008-2019 to 2020-2024, with the European average up from 9% to 12%. In major service sector hubs such as Frankfurt, the share of office space sold for conversion doubled from 10% to 20%, while Madrid recorded an increase from 14% to 17%. The Randstad conurbation in the Netherlands (which encompasses Amsterdam, Rotterdam, The Hague and 17 other medium-sized cities connected by advanced infrastructure) also saw the proportion of floor space sold for conversion rise from 6% to 17%. By contrast, London and Munich experienced a decline.

Milan, the only Italian city included in AEW’s sample, almost doubled the share of office space sold for conversion, which grew from less than 6% to more than 11%. Nonetheless, the report warns that conversion activity could be slowed by lenders’ increasingly risk-averse attitude towards offices, which may limit the availability of real estate development debt finance. Moreover, from 2026 onwards, new office supply could decline as investors diversify their portfolios rather than focusing on new office projects. CBRE also forecasts slower growth in total office stock, which is expected to increase by just 0.7% annually over the next two years compared to 1.3% per year between 2003 and 2024.

In 2024, total European office transaction volumes fell by 53% compared to the 15-year average, and in the first quarter of 2025 offices accounted for just 21% of total investment, the lowest level on record. But while values in Europe are expected to improve (with yields remaining close to 5%), the outlook in the United States is weaker, with continued declines expected.

Focusing on Italy, research by JLL (Jones Lang LaSalle) shows that investment in the Italian office sector reached approximately €1.4 billion in the first half of 2025, up 43% compared to H1 2024. The second quarter saw a particularly strong performance with investment of around €700 million, double the €360 million recorded a year earlier.

According to the JLL analysis (Italy | Office Capital Markets | Q4 2024), the Italian office leasing market recorded about 240,000 square metres of take-up in the first six months of 2025. The largest share was in Milan (around 200,000 sqm), followed by Rome (about 40,000 sqm). Overall, the office sector continues to show signs of vitality, with growing emphasis on the quality of spaces and the centrality of locations.

Milan confirms its position as Italy’s office market powerhouse. With around 200,000 square metres of take-up plus 10,000 square metres of subleases, the Lombardy capital saw growth of 18% compared to the first half of 2024. The market is dominated by Grade A properties, which represent around 80% of total take-up. The preference for high-quality, well-located assets is reflected in the concentration of transactions: about 50% of all take-up occurred in central areas and in the Central Business District (CBD), with a particular focus on the Porta Nuova district, which recorded the three largest transactions of the period in terms of floor space with a total of approximately 30,000 sqm.

In Rome, take-up in the first half of 2025 reached about 40,000 sqm, with Grade A offices accounting for 50%. The majority of transactions (around 70%) involved spaces smaller than 1,000 sqm, confirming the presence of a more fragmented market than in Milan.

“Value-add strategies are playing an increasingly important role,” explains Stefania Campagna, Head of Markets at JLL Italy. “In the first half of the year, over 30% of office investments (nearly half of all deals) involved conversion projects aimed at enhancing the value of existing assets through new uses, primarily residential, PBSA (Purpose-Built Student Accommodation) and hotels.”