Office Market Q1 2025: Challenges Conceal Potential 

The office rental market is being shaped by both economic uncertainty and long-term shifts in space utilization needs. Unclear future demand for office space has, alongside rising interest rates, contributed to an increase in office property yield requirements in recent years. However, time heals wounds. Oxford Economics forecasts that office employment growth in Helsinki will be the fastest among European cities over the next five years (Source: Office employment in cities is resilient, but risks remain | Oxford Economics). 

Finland’s employment trends are generally characterized by strong cyclical fluctuations. The most significant declines in employment numbers have been linked to the recession of the 1990s, the 2008 financial crisis, and the 2020 COVID-19 pandemic. While the effects of the recession of the 1990s was long-lasting and widely reflected in the economy, recovery from later crises has been relatively swift, with employment growth resuming as early as the year following the initial shock. In Uusimaa, particularly in Helsinki, the long-term growth prospects for the economy and employment remain strong, and the medium-term outlook also appears promising. 

“Suspension softens the bumps, and the direction remains northeast, as employment growth in Helsinki is expected to continue in both the medium and long term. From an office market perspective, it is encouraging that office employment is projected to grow faster in Helsinki than overall employment, placing the city among Europe’s top performers. Business services, information technology, finance, public administration, and welfare services are expected to be key drivers of this growth, according to The Helsinki Region Environmental Services Authority HSY. Additionally, the attractiveness of the entire Helsinki metropolitan area is underscored by the fact that Vantaa and Espoo have nearly tripled their number of jobs since 1980,” summarizes Anton Takkavuori, a real estate analyst at Retta Management, regarding the key drivers of the office market. 

Transaction Volume at Record Lows 

General uncertainty in demand has weighed down the market values of office properties. According to KTI, office property yield requirements continued to rise in 2024, whereas in other real estate sectors, they began to stabilize or even decline. This development has been reflected in market values, with office property values declining more than those in other sectors last year, highlighting the sector’s uncertainty and increased risk profile. 

Prime office yield requirements in Helsinki CBD rose from 3.4% to 5.2% by autumn 2024, according to the Rakli-KTI Commercial Property Barometer. At the same time, office property transaction volumes fell to historical lows in 2023 and 2024. Liquidity in the sector has been extremely limited, with a significant challenge being the lack of active buyers. 

Although the risk profile of the office market remains elevated, it also presents notable opportunities. Moreover, in a challenging market environment, sellers may become more willing to sell, which could lead to lower asking prices. This would enhance buyers’ negotiating power, opening up attractive opportunities for potential investors. 

Continued Uncertainty in the Short Term 

According to the Helsinki Research Forum, the vacancy rate in key office submarkets in the Helsinki metropolitan area stood at 15.4% at the end of 2024, slightly higher than the previous year when it was just below 15%. Rent increases have been primarily driven by index adjustments in existing lease agreements. According to Rakli, office vacancies have also increased significantly in many major cities outside the Helsinki metropolitan area in recent years. 

In Helsinki CBD, office space renovations and new developments are active, with large-scale investments reflecting the growing need to improve property quality to maintain rental appeal. However, outside the Helsinki metropolitan area, new office space development has remained minimal, even in major cities. 

A clear trend toward greater flexibility in office leasing is emerging. According to the Commercial Property Market in Helsinki and the Metropolitan Area 2024/2025 report, an increasing number of lease agreements now include flexible solutions, such as options to reduce leased space. Additionally, the significance of commonly used financial incentives in the office rental market, such as rent-free periods at the beginning of lease terms, has become more pronounced. 

“The quality of office spaces significantly impacts rental levels and vacancy rates. According to the autumn Rakli-KTI Commercial Property Barometer, nearly 75% of respondents believe that landlord-funded tenant improvements will increase. It was therefore expected that, according to KTI, landlord expenses continued to rise last year, as attracting and retaining tenants required more extensive measures,” summarizes Takkavuori on the current state of the office real estate market. 

Additional information:  

*The figures are based on statistics published by Oxford Economics, KTI, Rakli, the Helsinki Research Forum, and HSY, as well as the City of Helsinki’s Commercial Property Market in Helsinki and the Helsinki Metropolitan Area 2024/2025 report. 

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Anton Takkavuori
Kiinteistöanalyytikko
Retta Management
anton.takkavuori@rettamanagement.fi
Puh. 0400 853 528