ESG and AI ‘driving a growing divide in Europe’s office market’

Posted on: 1 April, 2026

By Linda Serck

A new report authored by University of the Built Environment Senior Lecturer David Hunt has found that European office markets are becoming increasingly polarised, with ESG compliance, asset quality, and AI capability shaping which buildings attract tenants, finance, and long-term value.

European office market trends

Office markets across Europe are becoming more divided between future-proofed buildings and ageing stock that is struggling to stay competitive, according to a new report authored by a University of the Built Environment academic.

The SIOR Europe Members Sentiment Report 2026, written by Senior Lecturer David Hunt, found that Environmental, Social and Governance (ESG) requirements are playing an increasingly influential role in leasing, investment, and development decisions, while uneven adoption of artificial intelligence is creating a further market divide.

Based on a survey and interviews with senior real estate professionals across Europe, the report concludes that Europe is entering what it describes as a “quality reset”, where performance is increasingly shaped by compliance, transparency, and professional capability.

David Hunt said the research “highlights just how uneven the pace of change is across European real estate markets”.

He added: “ESG expectations are rising quickly, but the industry is still working out how to translate those requirements into clear pricing signals and investment decisions.”

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ESG in commercial real estate

The report states that ESG has moved beyond reputation and become a practical factor in how buildings are judged by the market. For landlords, investors, and occupiers, it now plays a growing role in whether a building can attract interest, secure finance, and remain relevant over time.

As the report states: “ESG has shifted from a reputational consideration to a practical gatekeeper for financing, leasing, and long-term viability.”

That change is taking shape differently across Europe. In some markets, regulation is the main pressure point. In others, lenders, tenants or institutional investors are having the stronger influence. Across the continent, however, the report states that the divide is widening between buildings that can meet rising expectations and those that cannot.

Almost half of respondents said ESG issues arise regularly in their day-to-day work, while the same proportion said clients are increasingly requesting ESG data on potential properties. Clarity remains limited, however, with only 44% of respondents saying ESG requirements are clearly defined.

That uncertainty matters because, while ESG compliance is increasingly seen as essential, the market is still struggling to price it consistently. Most respondents estimated that any premium for ESG-compliant buildings is below 10%.

Grade A offices outpacing others

One of the clearest themes running through the report is the “increasing polarisation” of the office market.

As the report states: “Demand had concentrated in best-in-class buildings, while weaker stock is becoming progressively more difficult to sell, finance, or lease, despite being typically cheaper.”

The report states that this trend has become particularly visible in the years since the COVID-19 pandemic. Return-to-office strategies, combined with employers’ efforts to attract staff back into the workplace, have strengthened demand for high-quality offices with stronger ESG characteristics, modern amenities, and better long-term flexibility.

It states that many markets “have seen a structural shift away from Grade B buildings (with poor ESG characteristics) towards Grade A in the years since the COVID-19 pandemic”.

In central London, the report states that this has been intensified by a limited supply of high-quality space and restrictive planning laws, which have contributed to driving rental growth in the prime segment.

London office market

In London, the report states that ESG is often being treated as a way of simply preventing buildings from becoming outdated, or harder to use, let, or finance:
“In the United Kingdom (London), several SIOR members commented that ESG issues are increasingly formed by the need to avoid functional obsolescence rather than securing a measurable green premium.”

That finding points to a market where ESG is increasingly bound up with competitiveness and future marketability. The report also states that “larger occupiers are reluctant to commit to substandard space”, often because of future flexibility concerns. It adds that ESG ratings are now “critical to marketability”, especially as regulatory requirements are expected to become more stringent.

This shows that, for parts of the office market, ESG compliance is increasingly a basic requirement rather than a differentiator.

European real estate moving at different speeds

The report states that Europe is not moving as one office market. Instead, different regions and cities are responding at different speeds, shaped by their own planning systems, market conditions and investor expectations.

In Brussels, ageing office stock and a slow planning and permitting regime are making it harder to bring buildings up to modern environmental standards quickly.

In Paris, the report states that transition is shaped not only by occupier demand, but also by the technical feasibility and cost of upgrading older buildings.

In Switzerland, where EU ESG regulations do not apply, the report states that tenant demand appears to be a more important driver of highly rated ESG buildings.

Across northern Europe, finance is playing a particularly influential role. As the report states: “Lenders are increasingly offering terms that encourage environmentally compliant developments. This is thought to have a ‘pull’ effect, possibly driving change faster than regulatory requirements.”

That mix of regulation, finance, and market behaviour is helping to create what the report describes as a “two- or three-speed market”, with different regions facing different pressures, constraints and opportunities.

As the report states: “Across all regions, a consistent risk is becoming increasingly visible: a widening liquidity gap affecting sub-compliant and potentially stranded assets.”

AI adoption also creating market divide

Alongside ESG, the report identifies artificial intelligence as another force shaping European real estate markets.

It states that adoption remains uneven. London, Poland and Latvia are among the earlier adopters, integrating AI into tasks such as occupier analytics, underwriting support, and routine operational processes. In contrast, parts of Western and Southern Europe remain more cautious.

David said: “In London there is enough data as the market is transparent and big enough to use AI for various functions. In markets that are smaller and more opaque in terms of data, AI cannot yet be better than the knowledge of the small number of market players who operate in a tightly knit circle. They know their buildings, leases, rental values and so on.”

The report states that several concerns are holding back wider adoption, including credibility, governance, and over-reliance on automated outputs. Among the most frequently cited worries are “the reputational and operational risks associated with unverified AI outputs”.

David said: “Artificial intelligence is also developing at different speeds depending on market structure, data availability and firm capability. The opportunity lies in using these tools to support better decision making rather than replacing the professional expertise that underpins the sector.”

Conclusion

Taken together, the report states that Europe’s commercial real estate sector is entering a period in which asset quality, compliance, and digital capability are becoming increasingly important in determining performance.

As the report states: “Performance, risk, and capital allocation continue to be shaped by region-specific regulatory environments, capital structures, and occupational behaviours.”

For office markets in particular, the report points to a widening gap between prime and secondary stock, with ESG compliance and AI capability playing a growing role in which assets remain attractive to occupiers, investors, and lenders.

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As the report makes clear, the future of real estate will be shaped by ESG performance, data, and professional judgement. University of the Built Environment courses in real estate, building surveying and sustainable construction are designed to develop exactly those capabilities.

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• MSc Real Estate – University of the Built Environment
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FAQ: What is ESG?

ESG stands for Environmental, Social and Governance. It is a framework used to assess how responsibly and sustainably an organisation or asset is managed.

What does ‘Environmental’ mean in ESG?

‘Environmental’ covers both an organisation’s impact on the natural environment and the environment’s impact on the organisation. That includes climate change impacts, direct impacts from the organisation’s own activities, and indirect impacts across its value chain, including suppliers, customers or investments.

Environmental issues include:

• climate change
• biodiversity and nature loss
• greenhouse gas emissions
• resource use and circularity
• energy consumption
• carbon footprints
• waste management and pollution
• land and water management
• environmental targets and disclosures
• net zero transition planning

What does ‘Social’ mean in ESG?

‘Social’ covers an organisation’s interactions with, responsibilities towards, and impacts on a range of stakeholders, including society at large.

Social issues include:

• diversity, equity and inclusion, both at board level and across the workforce
• fair pay policies
• ethnic and gender pay gaps
• health and safety
• workforce wellbeing, both physical and mental
• workplace policies
• organisational culture
• duties towards customers and consumers
• ethical procurement
• modern slavery
• human rights
• social or community projects and partnerships
• charitable giving

What does ‘Governance’ mean in ESG?

‘Governance’ is the process by which decisions are made and implemented in an organisation. It covers the compliant and ethical conduct of an organisation’s activities and the controls in place for monitoring them, in line with the organisation’s purpose and enabled through effective decision-making and oversight.

Governance issues include:

• board oversight and boardroom dynamics
• adherence to governance codes and frameworks
• effective integration of ESG into strategy and operations
• internal controls
• data privacy and cyber security
• transparency and accuracy of reporting
• management of bribery, corruption and money laundering risk
• supply chain controls
• setting and applying organisational values, culture and purpose