Selective recovery: how Europe’s office market will fare in 2026
A new outlook from the Urban Land Institute and PwC suggests that the European office real estate market is not rebounding to its pre-pandemic highs – but there are green shoots in key areas
The European real estate market is continuing to diversify beyond the traditional office, with alternative sectors such as life sciences, residential, education and data infrastructure climbing the investment rankings, according to the Emerging Trends in Real Estate 2026 report published by the Urban Land Institute (ULI) and professional services company PwC.
At first glance, this shift might look like bad news for offices. But in reality, the picture is more nuanced. Rather than a broad-based rebound, the office sector is undergoing a selective recovery. Demand is strongest for best-in-class buildings, offices with strong sustainability credentials, and locations where return-to-office patterns are more established.
Diversifying real estate
Against a backdrop of global political instability, escalating conflicts, housing affordability pressures and uncertain European economic growth, investors are looking to diversify their real estate portfolios. The sector’s prospects for 2026 find suburban offices at the very bottom of the list with a generally poor outlook for the year ahead, while city-centre offices, flexible serviced offices, coworking, and business parks sit in the lower half of the pack.
By contrast, data centres, life sciences, healthcare and commercial-led mixed-use developments are viewed more positively. A recurring theme is the rise of ‘operational real estate’ – assets that sit at the intersection of property, infrastructure and social value. Data centres, energy infrastructure and life sciences facilities are increasingly framed as essential components of Europe’s digital and economic resilience.
This reframing reflects a broader shift away from view real estate purely as space, towards understanding it as an enabler of economic and social activity – whether that is research, healthcare, energy supply or interaction.
AI and digital infrastructure
Unsurprisingly, AI looms large. Nearly three-quarters of respondents say AI is now being used to support real estate activities, up sharply from 51% last year. But the impact is uneven. While AI is accelerating demand for digital infrastructure, its influence on occupiers’ workplace strategies remains relatively low on tenants’ priority lists – at least for now.
What is clear is that computing is moving out of general office environments and into purpose-built facilities. Centralising IT operations in data centres can reduce overall energy consumption compared to dispersed server rooms, although water and power demand remain challenging ESG considerations.
Decarbonisation under pressure
Decarbonisation remains critically important to the long-term future of real estate, but the report detects signs of green fatigue. Nearly half of respondents say they have adjusted their ESG strategies in response to macroeconomic uncertainty, and some express frustration with the layers of bureaucracy associated with compliance to ambiguous guidance.
The message from the market is not that ESG no longer matters, but that it needs to be articulated more clearly. Asset managers are under pressure to demonstrate how sustainability connects to value creation, resilience and investment performance, rather than treating it as a parallel agenda.
What occupiers want
From an occupier perspective, the priorities are more pragmatic. The top drivers of workplace strategy over the next 18 months are vibrant locations with strong public transport links, attractiveness to talent, and reducing overall costs. Three in five real estate professionals surveyed in the report believe well-connected, lively locations will shape occupiers’ decisions, and 70% say location is now a central factor in lease negotiations.
This creates a tension between what is desirable and what is affordable for occupiers – balancing cost reduction with premium locations. This is a balance that many organisations are still navigating.
The opportunity ahead
One respondent in the report estimates that Europe is ‘about 10 to 15% oversupplied with offices’, many of them low-quality ‘zombie’ buildings. In that context, the opportunity is to be strategic and selective with the premium assets, and to repurpose office spaces that are no longer desirable. The report suggests that now is the moment to lean into value-add strategies in prime locations by strategically upgrading assets, repositioning buildings, or rethinking uses altogether.
The long-term focus is on secular trends such as demographics, digitalisation and decarbonisation. Ultimately, the theme throughout the report highlights that well-designed, desirable buildings can actively promote wellbeing and productivity.
The report highlights that in 2026, only the offices that genuinely earn their place in the city will thrive. Read the full Urban Land Institute and PwC report ‘Emerging Trends in Real Estate: Europe 2026’ here.
