Office Investment H1 2026: The Comeback of the Written-Off Asset Class

For a long time the German office was seen as the structural loser of the rate shock and the hybrid workplace. For two years institutional buyers withdrew from the sector, valuations slumped, and open-ended funds had to absorb write-downs. At the 2026 half-year mark the investment market tells a different story: of all things, the asset class investors had avoided longest is delivering the strongest recovery. According to CBRE, office investment volume rose to roughly EUR 3.45 billion in the first half of 2026, up 66 percent year on year – the sharpest percentage rebound among the major use types (CBRE). The overall market reached about EUR 16.6 billion, some five percent above the prior-year period; JLL measures roughly EUR 17.6 billion, a gain of about 15 percent (JLL). Principals should look closely: this is not broad euphoria but a highly selective return of capital whose durability has yet to prove itself.

Why capital is returning to the office sector

The rebound draws on three sources. First, price discovery has corrected furthest in the office segment. After two years of repricing, buyer and seller expectations have moved back together in many core locations, so deals are getting done again. As long as price ideas were too far apart, the market was simply illiquid – only sellers capitulation to the new price level restored tradability. Second, the base effect drives headline numbers like the 66 percent: the first half of 2025 was an exceptionally weak benchmark, so even a moderate pickup looks impressive in percentage terms. Anyone measuring the absolute EUR 3.45 billion against the record years sees how far the market still is from earlier volumes.

Third – and this is the durable driver – a pronounced flight to quality is under way. Institutional buyers pursue modern, ESG-compliant, centrally located assets while continuing to avoid the rest of the market. This selectivity is not a transitional phenomenon but the expression of a changed risk understanding: after the correction years, investors accept lower entry yields only where asset quality, location and tenant covenant minimise re-letting risk. CBRE itself describes a gradual, ongoing recovery of the investment market (CBRE). The word gradual is deliberate. Notably, residential remained the strongest asset class despite a slightly softer half-year – so the office comeback is not a displacement but the return of a second pillar.

A two-speed office market

The half-year figure conceals a deep split. The German office investment market is a two-tier market in which the paths of prime and average assets keep diverging. In demand are buildings with energy rating A or B, flexible floor plans, good public-transport links and strong-covenant anchor tenants on long leases. For such trophy assets in the top locations of the Big 7, prime yields are stabilising and there are again several bidders per asset. Competition for this scarce supply is so intense that in individual cases even slight price premiums over the prior year are achievable.

At the other end sits the 1990s and 2000s stock in decentralised locations: in need of energy retrofit, with short remaining lease terms and vacancy risk. For these assets there is virtually no liquid market at prices sellers would accept. Here the correction continues, and many owners face a choice between costly repositioning, conversion – for instance to residential – or a sale at a substantial discount. The capital required for an energy upgrade is considerable, and not every asset can carry the necessary investment. Leasing take-up confirms the pattern: occupier demand likewise concentrates on high-quality, efficient space, while large legacy lettings linger in the waiting loop. For investors the split means that a blanket look at market averages misleads – every asset must be judged individually along its quality, location and letting situation.

Yields are rising again – rates catch up with the market

The real warning of the half-year is not in volume but in yields. For the first time since the initial stabilisation, market observers report yield increases again for the first half of 2026 (it-boltwise). The cause is the monetary-policy reversal: on 11 June 2026 the ECB again raised its key rates by 25 basis points, taking the deposit rate to 2.25 percent (Bundesbank). Rising risk-free rates and higher financing costs push up the entry yields investors must demand to earn an adequate risk premium over Bunds.

This puts the office market in a paradoxical position: volume is recovering while the valuation base comes under renewed pressure. For sellers this means a narrow window in which liquidity and price level are available at once. For buyers it shifts selection toward assets with indexed leases and rental-growth potential that can offset a further yield rise through growing cash flows. An asset with fixed stepped rent loses value as yields rise, while an indexed asset at least partly counteracts it. The JLL market overview points to precisely this sensitivity to the rate path as the defining theme of the second half (JLL). Buyers today should therefore base their calculation on a scenario of further rising rather than falling yields.

Outlook for the second half

Whether the office comeback holds depends on the interplay of three factors. First, the rate path: if the further ECB steps expected for the second half materialise, financing becomes more expensive and yield requirements rise again. Second, capital availability: open-ended funds keep rebalancing their portfolios, while opportunistic and value-add capital hunts selectively for repositioning opportunities in the stock. It is precisely in this value-add segment that the greatest growth in activity could unfold, if buyers are willing to take on the energy-upgrade risk. Third, occupier demand: only if leasing markets support prime rents does the flight to quality remain mathematically viable.

For the second half, therefore, a continuation of the selective pattern is more likely than a broad upswing. Capital is back – but it is choosy, price-conscious and concentrated on a narrow slice of the market. Owners of older, energy-weak assets should not mistake the current window for a general market recovery. The decisive strategic question is not whether the market recovers but which segment a specific asset sits in – and whether the time remaining until the next letting or refinancing suffices to move it to the right side of the split.

Regional differences and the role of foreign capital

The national average conceals considerable regional differences. In Munich and Berlin, the countrys two deepest office markets, the largest number of institutional buyers and thus the most reliable liquidity for prime assets is found. Frankfurt benefits from its role as a financial centre and demand from strong-covenant tenants, while Hamburg, Düsseldorf, Stuttgart and Cologne each show their own demand profiles. For sellers this means that the same asset profile meets very different buyer pools depending on location – a trophy asset in a B city is markedly harder to place than in one of the two big metropolises.

Added to this is the return of foreign capital as an additional demand factor. After two years in which international investors largely avoided the German market, individual houses are again selectively scouting core and core-plus assets. Their return is selective and concentrated on prime locations but broadens the bidder pool where quality and transparency are right. For principals this is a double-edged signal: it supports prices in the top segment but at the same time sharpens competition for exactly the assets domestic investors also seek. The gap between the liquid prime segment and the illiquid rest of the market is thus more likely to widen further than to close.

On balance, the first half of 2026 marks not a return to normality but the establishment of a new one. In this new order, liquidity is no longer a state of the overall market but a property of individual assets, measured against quality, location, lease structure and energy efficiency. Those who review their portfolio along these criteria and assign each asset to the right side of the split can use the selective recovery; those who wait for a broad upswing lifting all segments miss the window for the weaker assets.

What this means for principals: the office comeback is real but narrow. The 66 percent is a base effect plus genuine flight to quality, not a sign of broad recovery. Owners or buyers of prime, ESG-compliant core assets with indexed leases operate in the most liquid segment and can cushion rising yields through cash-flow growth. For energy-weak stock, by contrast, the current environment is an exit or repositioning window, not a recovery signal – and with yields rising again, decision speed matters.