The combination of changing work patterns, occupier demand for ‘green’ assets, increasing legislative action from European governments around minimum sustainability standards, as well as an uncertain economic backdrop are key factors underpinning the risk to office assets, the firm said.

In its report ‘Obsolescence = Opportunity: The next evolution of office space in Europe’, C&W warns that landlords must act now to mitigate the risk to their portfolios.

Energy performance in particular plays a key role in driving sustainability, and offices which drop below a certain level are under threat of legal obsolescence.

In the UK, for example, commercial buildings must have a minimum EPC rating of E by April 2023, increasing to B by 2030. In the Netherlands, meanwhile, all offices are already required to have a minimum C rating under new legislation which came into effect in January.

Around half of Europe’s existing office stock is over 30 years old and only 14% has been built or substantially modernised in the past 10 years, requiring landlords to upgrade space or risk it dropping to a lower grade, according to Cushman & Wakefield.

Splitting the current office stock into three broad categories - top, middle and bottom – the firm says around 24% fits modern office usage and is in high demand; 62% requires repositioning to avoid deterioration; and 14% is ageing, non-updated stock that is in many ways already obsolete.

The report analysed office stock by age and grade; construction and completions (historically and estimates for future activity); and occupier demand trends and utilisation since the pandemic. Overall, it analysed 218 million m2 of office stock in 14 markets in 11 countries across Europe.

James Young, head of investor services EMEA & APAC, said: ‘The office sector is facing a critical chapter of necessary adaptation, evolution, and recalibration. Across Europe there is strong demand for offices, but occupiers drive the market and they are increasingly focused on the very best workplaces.’

He added: ‘For owners of older, lower quality assets, doing nothing is not a strategy. Landlords that reinvest in sustainability credentials, amenities, sense of place and community engagement to move their assets into top quality ratings will benefit from this flight to quality. Those that do not will face diminishing returns.’

The report predicts a growing imbalance between available top-grade space and an increase in stock that could become obsolete or has the potential to be so unless immediate action is taken.

Noted Young: ‘Addressing the challenge head-on with a proactive, creative, and strategic approach will help owners and investors recover value and generate returns… There is no “one size fits all solution” but learnings from around the world can allow evolution to take place in a measured and intentional manner.’