Commercial
Sections: Overview Project activity Key considerations
Commercial
Sections: Overview Project activity Key considerations
Activity in the European commercial sector varies across the region, with growth trends forecasted to be mainly focused on prime locations which can avail of prime rents and pre-lets to support viability.
Paul Brady Senior Director, Europe
Overview
The European commercial construction sector is shifting towards sustainability, with a focus on retrofitting and high-quality fit-outs dominating the market.
The European commercial sector is on course for a modest recovery through 2025, with output value growth forecasted to vary across the region, when compared to 2024. There is greater momentum in Environmental, Social, and Governance (ESG) focused and employee experience-based refurbishments and coupled with government incentives, these are set to drive, continued growth in 2025 and beyond. Demand is becoming increasingly polarised, with businesses prioritising high-quality workspaces in prime locations, leaving lower-quality spaces underutilised. As a result, refurbishment and asset repositioning are accelerating, particularly in key office hubs like London, Paris and Madrid, where demand for premium properties remains strong. For example, Spain’s office construction output is projected to rise by 4.8% and Ireland’s by 2.9% in 2025.
Companies are increasingly prioritising office spaces that align with their ESG commitments. European and local government mandates, such as the 'EU Taxonomy for Sustainable Activities', updated in 2023 with stricter climate criteria and effective January 2024, are driving investments into green construction and energy-efficient refurbishments.² ³ Climate change-associated risks are also now a critical factor in development and redevelopment decisions. Occupiers are focusing more on evaluating a property’s resilience to handle extreme climate events, which has been brought into keener focus with events in recent years.
There are market indications that developers are increasingly selective, favouring high-value Grade A office projects over speculative builds, reflecting a risk-averse approach amid economic uncertainty.
Project activity
The commencement of speculative commercial projects has reduced significantly and a trend is developing of pre-lets in prime locations required to support viability. There are a number of commercial projects that are due for completion in the next three to four years, which will provide a good opportunity for high quality fit-outs and end user experiences to suit demand.
Government incentives for green building renovations and stricter carbon reduction targets are expected to accelerate refurbishment projects across Europe. Recent measures include the EU’s Energy Performance of Buildings Directive (EPBD) revision, adopted in March 2025, which offers tax breaks and grants for zero-emission buildings.
France
France’s MaPrimeRénov’ extension, updated in March 2025, is providing tax credits and grants for office building upgrades that meet new EU carbon standards.⁴ Paris is seeing significant refurbishment efforts, with a focus on energy efficiency retrofits, particularly in the La Défense business district.
Germany
Major cities like Berlin, Düsseldorf and Frankfurt are witnessing an increase in refurbishment projects, particularly for mixed-use developments. Germany’s climate protection contracts, expanded with €2.8bn in subsidies for energy-intensive industries starting in October 2024, supports commercial retrofits alongside other decarbonisation efforts.⁵
Ireland
Ireland’s office market is shifting, with rising demand for energy-efficient spaces and 71% of surveyors expecting a surge in retrofitting, especially in commercial office properties.⁶
Italy and Spain
The repurposing of outdated office buildings into co-working hubs, residential space, and mixed-use developments has risen, continuing a trend that gained momentum in 2024.
UK
The UK commercial market is seeing a rise in fit-out projects and building retrofits compared to 2024, as demand for high-quality, ESG-compliant buildings grows.
Key considerations
01
Global instability
US tariffs may initially bolster domestic materials supply in Europe by diverting trade flows, potentially lowering prices short-term. However, increased competition from low-cost imports is already pushing local producers to slash prices to stay competitive. Over time, sustained pressure could force production cuts, reducing supply and driving prices back up, amplifying volatility rather than stabilising it. The EU’s retaliatory tariffs are causing uncertainty for investors and developers. The main impact of these trade barriers is likely to be felt by global supply chain.
According to a recent EY's 2025 European Attractiveness Survey, Europe's Foreign direct investment (FDI), has declined to a nine-year low with projects down 5% and jobs down 16% in 2024. Slow economic growth, persistently high energy prices and a difficult geopolitical environment were some of the reasons behind the second consecutive downturn since 2020. ⁷
02
Project viability
Affordability has been a primary concern for investors and developers over the last few years. Recent material cost corrections, coupled with falling interest rates are improving project viability prospects over 2025.
The EU Green Deal’s revised Energy Performance of Buildings Directive (EPBD), effective from May 2024 with phased implementation starting January 2025, is pushing developers to upgrade older commercial buildings for energy efficiency. This mandates significant retrofits—such as advanced insulation or low-carbon heating systems—to meet net-zero standards, particularly in markets with aging building stock.⁸ Companies also face rising compliance costs to hit ESG targets. Challenges include data collection across fragmented supply chains, retrofitting outdated HVAC systems, and assessing both financial risks and environmental impacts under complex sustainability rules. However, recent simplifications to the Corporate Sustainability Reporting Directive (CSRD), announced in February 2025, could ease reporting burdens for smaller firms (applicable only to companies with over 1,000 employees) by raising thresholds and streamlining standards.⁸
03
Increased investment in smart building technology
The demand for AI-driven building management systems is growing, which can assist property owners and occupiers in improving efficiency and meeting net-zero goals. Cities like London, Amsterdam and Paris are witnessing a rise in commercial buildings integrating IoT (Internet of Things) sensors for real-time energy monitoring.
04
Evolving workplace preferences
The shift towards hybrid work models has led to smaller, more flexible office spaces, rather than large-scale commercial developments. Demand for multi-use, adaptable spaces is on the rise, influencing design trends and investment priorities in commercial construction.
Sources
- Global Data
- How to navigate EU Taxonomy's complex rules, EY, September, 2024
- COMMISSION DELEGATED REGULATION (EU) 2023/2486 of 27 June 2023, European Union - EUR-Lex
- MaPrimeRénov': the energy transition bonus, Ministry of the Economy, Finance and Industrial and Digital Sovereignty of France Commercial Property Market Monitor Review and Outlook 2025
- Habeck presents first carbon contracts for difference: 15 transformation projects can now launch, Federal Ministry for Economic Affairs and Energy, Germany, October 2024
- Society of Chartered Surveyors Ireland, February 2025
- 2025 European Attractiveness Survey - EY, May 2025
- Energy Performance of Buildings Directive, European Commission
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