The European Office Divide: Why Prime CBD Assets Are the Safe Harbor in a Polarized Market

The European office market is undergoing a seismic shift, with a stark divide emerging between prime central business district (CBD) assets and secondary non-CBD properties. As hybrid work models reshape demand and sustainability requirements intensify, investors face a critical choice: allocate capital to high-quality CBD locations or risk exposure to structurally challenged peripheral markets. Data from Germany's key cities—Berlin, Frankfurt, and Düsseldorf—reveals an accelerating divergence in vacancy rates, rental growth, and investment yields, making the case for strategic focus on prime assets before the 2025 vacancy peak.

The Bifurcation in Vacancy Rates: CBD Fortresses vs. Non-CBD Vulnerabilities

The most glaring evidence of polarization lies in vacancy rates. As of mid-2025:
- CBD areas in Berlin, Frankfurt, and Düsseldorf maintain vacancies under 5%, driven by strong demand for high-quality, centrally located offices. Frankfurt's CBD, for instance, absorbed significant leases in prime towers like the Central Business Tower, while Berlin's core markets remain resilient despite citywide vacancy rising to 9.6%.
- Non-CBD submarkets, however, face a stark reality: vacancy rates exceed 10% and are projected to peak at 12-15% by late 2025. In Düsseldorf, peripheral areas struggle with oversupply, while Berlin's outskirts see vacancy surging due to remote work adoption and declining sublease activity.

This divide is structural, not cyclical. would show a widening gap, with CBD vacancies declining or stabilizing while non-CBD rates climb. The bifurcation is fueled by flight-to-quality dynamics, as occupiers prioritize sustainability, connectivity, and productivity-enhancing environments concentrated in prime CBDs.

Rental Trends: Premium for Primes, Discounts for Peripherals

The rental market mirrors the vacancy split:
- CBD rents are climbing, buoyed by limited supply and high demand. Frankfurt's prime CBD rents hit €51/sqm/month by Q2 2025, up 2.5% year-on-year. Berlin's core markets saw similar resilience, with top-tier assets holding steady despite broader softness.
- Non-CBD rents, meanwhile, face downward pressure. Secondary markets in all three cities offer rent-free periods or discounts of 10-20% to attract tenants, yet absorption remains weak. Düsseldorf's peripheral rents, for example, have fallen 5% since 2023 as oversupply persists.

The gap in rental growth is stark. would show CBD rents outperforming non-CBD by 4-6 percentage points annually.

Investment Yields: Risk and Reward in Two Markets

Investors face a clear trade-off in risk-adjusted returns:
- Prime CBD assets offer low yield volatility and capital preservation, with stabilized vacancies and predictable cash flows. Frankfurt's CBD REITs, for example, yield 3.8%, far below the 5.5% average for German office REITs, reflecting their premium quality.
- Non-CBD assets, by contrast, carry elevated risk. Their higher vacancies and weaker demand push yields to 6-8%, signaling distress. Berlin's peripheral office funds, for instance, now require 21% debt refinancing buffers—a stark warning of liquidity strains.

The yield gap reflects deeper structural issues. Non-CBD properties often lack modern energy systems, accessibility, or density—making them unattractive to occupiers and investors alike. would highlight how CBD cap rates have compressed to 4-5%, while non-CBD rates remain elevated at 6-8%, signaling a widening valuation chasm.

Structural Challenges in Non-CBD Markets

Three factors cement the non-CBD's underperformance:
1. Oversupply and Aging Stock: Secondary markets face a pipeline of 580,000+ sqm of new Berlin office space alone, with only 41% pre-leased. Older buildings lack energy efficiency upgrades, making them costly to retrofit or obsolete.
2. Remote Work Adoption: Companies are consolidating into CBD hubs, reducing demand for sprawling suburban offices. In Düsseldorf, sublease space declined by 45,000 sqm in 2024 as hybrid models reduce space needs.
3. Refinancing Risks: Non-CBD-backed loans face a 21% debt funding gap by 2028, as lenders demand higher returns for riskier assets.

Investment Strategy: Act Before the 2025 Vacancy Peak

The window to capitalize on prime CBD assets is narrowing. Key recommendations:
1. Prioritize Core Plus and Prime CBD REITs: Target funds like Frankfurt Prime Office Fund or Berlin CBD REIT, which offer 4-5% yields with low vacancy exposure.
2. Avoid Non-CBD Assets: Steer clear of secondary markets unless developers offer value-add opportunities, such as retrofitting for energy efficiency—a costly but potentially rewarding play.
3. Monitor the 2025 Vacancy Inflection Point: By late 2025, non-CBD vacancies may peak, creating distressed sale opportunities. However, timing this requires caution, as oversupply could linger.

Conclusion: The CBD Premium Isn't Going Away

The European office market's polarization is not a temporary blip but a permanent realignment. Investors who allocate to prime CBD assets now will secure capital appreciation and steady returns as secondary markets grapple with structural overhang. The data is clear: the future belongs to those who bet on the quality, connectivity, and sustainability of core urban centers—before the gap between winners and losers widens further.

The time to act is now. The 2025 vacancy peak offers a final chance to secure prime locations at pre-crisis prices—after which, the divide may become unbridgeable.