European Prime Rents Rise as Property Yields Turn Higher

European commercial real estate rents continued to rise in the second quarter of 2026, while the recovery in investment pricing became less uniform. Prime central business district office rents increased 4.5% year over year, logistics rents gained 2.4% and prime high-street rents rose 3%. At the same time, average prime office and logistics yields moved outward for the first time in more than two years. Owners are therefore facing two competing forces: scarcity of high-quality space is supporting rental income, while a higher cost of capital is limiting asset valuations.

Prime European office rents rise 4.5%

Europe's prime commercial property markets remained resilient through the second quarter despite geopolitical uncertainty and higher European Central Bank rates.

The latest research from Cushman & Wakefield showed prime CBD office rents rising 1.2% quarter over quarter and 4.5% year over year. Logistics rents increased 0.6% in the quarter and 2.4% annually, while prime high-street retail rents rose 0.2% and 3%, respectively.

The DNA of Real Estate research covers up to 43 European cities across office, logistics and high-street retail property. Its prime measures refer to the highest-quality assets in the strongest locations rather than average space across an entire city.

Benelux recorded a 2.6% quarterly office rental increase, Germany 1.9%, and the UK and Ireland 1.6%. Rotterdam stood out with a 13.2% quarterly increase to about €385 per square metre per year. Warsaw prime office rents were more than 8.5% higher than a year earlier.

Office and logistics yields start moving outward

Investment pricing provided a different signal. Europe's average prime office yield increased three basis points to 5.39%. Seven office markets recorded outward movements, compared with only two where yields compressed.

The average logistics yield rose two basis points to 5.23%, with nine markets reporting outward movements. Prime high-street retail yields were unchanged at 4.77% and remained four basis points tighter than a year earlier, according to the full DNA of Real Estate Q2 2026 dataset.

Yield decompression should not be confused with landlords simply earning more income. Property yields measure income relative to the price paid for an asset. If income remains constant, a higher capitalisation yield implies a lower valuation.

A building producing €5 million of annual net operating income would be worth €100 million at a 5% yield on a simplified calculation. At 5.5%, the same income stream corresponds to a value of about €91 million. Actual property pricing also depends on rental growth, vacancy, operating costs and future income expectations.

Scarcity of top offices supports rental growth

Prime rents are rising even as overall European leasing activity remains subdued. Office take-up across 18 major markets totaled 3.64 million square metres in the first half of 2026, down 9% from a year earlier and also 9% below the five-year average.

A shortage of modern Grade A space in the strongest locations has continued to support prime rents. BNP Paribas Real Estate reported that vacancy increased across much of Europe as occupier demand weakened, while falling in Barcelona, Madrid, Warsaw, Dublin and Central London.

This is creating an increasingly divided office market. Large occupiers continue to compete for modern, energy-efficient buildings in central locations, while older assets in weaker districts may simultaneously face higher vacancy and pressure to offer incentives.

Data from CBRE show the same broad pattern. Its European prime office rent index increased 5.8% year over year in Q2, with gains in 21 of the 30 monitored markets. London West End rose 17.5%, Birmingham 14.3%, Hamburg 13.9% and Milan 9.2%. Overall Q2 office leasing activity, however, was 14% below the same period of 2025.

Warsaw stands out in the European market

Poland was one of the stronger markets in the Cushman & Wakefield survey. Prime Warsaw office rents increased by more than 8.5% year over year, with growth concentrated in the best existing and planned buildings in central locations.

Across Poland's nine largest office markets, total modern stock reached about 13 million square metres at the end of Q2. Approximately 119,000 square metres of new space was delivered in the first half, with 76% of that total completed during the first quarter, according to the latest Poland MarketBeat.

Warsaw also recorded Europe's strongest quarterly logistics rental growth at 4.8%, ahead of Milan and Rome at 2.9% each. Central and Eastern European logistics rents rose 1.5% during the quarter, while Southern Europe gained 2.4%.

Limited development and high construction and financing costs are supporting landlords of high-quality Polish assets, while simultaneously making it harder for developers to launch new schemes without secured tenants.

Logistics growth remains positive but slower

European logistics rents increased for a fourth consecutive quarter. Q2 growth was 0.6%, leaving rents 2.4% higher than a year earlier.

Annual growth has slowed from 3.1% in the previous quarter. Developers have become more cautious about speculative construction after several years of rapid warehouse expansion, helping to keep supply and demand more balanced.

Investment pricing is becoming less supportive. The average prime logistics yield increased to 5.23%, meaning that resilient occupier demand no longer automatically translates into higher capital values if buyers simultaneously require a higher return.

High-street retail yields remain stable

Prime high-street retail rents recorded the smallest quarterly increase of the three sectors at 0.2%, while remaining 3% higher year over year.

Stockholm rose 2.3% in the quarter and Madrid 2%. None of the markets in the Cushman & Wakefield sample recorded a rental decline.

The average prime high-street yield remained at 4.77%, making retail more stable in investment-pricing terms than either offices or logistics during the quarter.

Following a significant repricing during the pandemic and the expansion of e-commerce, prime retail locations have benefited from recovering city-centre footfall, international tourism and limited availability of the best units.

Higher ECB rates change real estate pricing

The change in property yields coincided with tighter euro-area monetary conditions. The European Central Bank raised all three key interest rates by 25 basis points on June 11.

Since June 17, the deposit facility rate has stood at 2.25%, the main refinancing rate at 2.40% and the marginal lending rate at 2.65%. The bank left all three unchanged at its July 23 meeting. The European Central Bank said future decisions would remain data-dependent and be made meeting by meeting.

Interest rates affect property through financing costs, government bond yields and investors' required risk premiums. When relatively low-risk bonds provide higher returns, property generally needs to offer either a higher current yield or stronger expected income growth to remain competitive.

That explains how commercial real estate can simultaneously experience rising rents and weaker valuations. Leasing conditions are driven primarily by occupier supply and demand, while investment prices are also heavily influenced by the cost of capital.

Investors are becoming more selective

This shift was already visible before the Q2 data. Cushman & Wakefield's first-quarter European Investment Atlas classified about 56% of 119 monitored European markets as underpriced relative to its fair-value framework. Its Fair Value Index fell to 74 as higher risk-free rates reduced the scope for further yield compression and softened expectations for capital growth.

The consultancy described the market as remaining in a stabilisation phase, with logistics and retail occupying its strongest investment position. Office performance was becoming increasingly dependent on individual location, asset quality and income growth prospects, according to the European Investment Atlas Q1 2026.

The Q2 numbers reinforce that transition. More than three-quarters of European markets continued to report stable yields, but the number recording outward movements increased. The shift does not yet amount to another broad repricing cycle, but the period of widespread yield compression has clearly lost momentum.

Rental growth is still supporting prime values

For owners of the strongest assets, rent growth remains an important counterweight to higher yields. If net operating income increases quickly enough, it can partially or fully offset the valuation impact of a higher required return.

Modern offices in supply-constrained CBDs, logistics facilities around major transport corridors and units on the strongest retail streets are consequently better protected. Such properties have more scope to raise rents and retain occupiers despite higher financing costs.

The position is weaker for secondary property. Older offices may require significant refurbishment and energy-efficiency investment, while weaker locations offer landlords less ability to pass higher costs on to tenants. Outward yield movements can therefore have a larger effect on their capital values.

As International Investment experts note, the Q2 figures do not indicate a new European commercial property crisis, but they do suggest that the simplest phase of the investment-price recovery is ending. The market is increasingly divided: scarcity gives landlords of the best assets rental pricing power, while the cost of capital limits how much investors are prepared to pay for that income. Outward yield movement should be interpreted particularly carefully — it offers a new buyer a higher entry yield, but for an existing owner it implies a lower asset value if income is unchanged. The key question over the coming quarters will be whether rental growth remains strong enough to offset higher required returns.