European office markets and the promise of AI

As artificial intelligence has evolved from a niche capability to a general-purpose technology, massive capital inflows have driven unprecedented growth in the sector. In the United Kingdom, France, and Germany, investments are pouring in by the billion, fostering the emergence of new ecosystems and new players that are consuming square footage of office space. Whether in London, Paris or Munich, this wave could obviously have significant real estate implications, so the CoStar News teams in each country are assessing its scope.

Demand from AI firms has boosted leasing levels in several United Kingdom office markets in the first five months of 2026. For starters, leasing of London offices by AI firms, CoStar's analysis includes only leasing from companies that develop artificial intelligence technologies rather than those that apply AI to their business model, has reached record levels as activity accelerates with the progressing year.

Demand from some of the world’s largest private AI labs drove three-month rolling take-up to above 450,000 square feet in April 2026, almost twice the volume recorded in March, and far higher than the 2025 average of around 40,000 square feet. Rolling average take-up in May totalled 440,000 square feet after Humanoid leased 42,000 square feet at 1 Triton Square close to the most in-demand area, the King's Cross Knowledge Quarter.

Toby Courtauld, chief executive at GPE, said: “London has already established itself as a leading AI occupier market, outpacing many of its international peers. At GPE, we are seeing this translate directly into leasing activity with the business recently achieving record lettings. AI-related customers now make up over 10% of our total office portfolio and more than a quarter of our Fully Managed space.”

The first large transaction of the year was British AI firm Quantexa’s prelet of 51,000 square feet at developer GPE’s Delft building, on the Southbank, which is expected to complete in spring 2027. It is understood that the space was secured at a record rent for that submarket of just under £150 per square foot. This was quickly followed by Derwent London’s prelet of 136,000 square feet to Databricks at 10 Howland Street, Anthropic’s leasing of 158,000 square feet from British Land and RLAM at 1 Triton Square, as revealed by CoStar News, and OpenAI’s deal to occupy 88,500 square feet at Nan Fung’s Regent Quarter scheme.

The area around King’s Cross and Euston stations has undoubtedly proved the biggest winner by volume, attracting over 300,000 square feet of demand from AI firms since the beginning of last year, accounting for almost half of all deals. King’s Cross has an established tech ecosystem, and is home to DeepMind, Alphabet's AI division, along with Google, Meta and Microsoft. It also sits at the centre of one of the United Kingdom’s strongest AI talent corridors. There is a direct rail link to Cambridge, one of Europe’s leading research hubs into the subject and University College London, London School of Economics, Imperial and King’s College London are minutes away. But other London markets are benefitting. United States technology giant Microsoft agreed to lease the entire eight storeys, totalling around 100,000 square feet, at Film House in Soho from Hines for its UK-based artificial intelligence teams.

Regional markets have also benefited from increased activity. In March 2026, Graphcore, a developer of microprocessors specifically designed for AI and machine learning, leased 68,500 square feet at 1 Georges Square, Bristol, a significant increase from the 27,000 square feet it occupied at the Prudential Buildings on Wine Street. Graphcore paid £52 per square foot for the space, one of the highest rents ever paid in Bristol. In Cambridge, Nvidia took almost 11,000 square feet at 10 Station Road, close to the offices of Microsoft Research and Samsung AI.

As AI moves from the innovation phase to deployment, more expansion is expected. Analysis from CreditSights estimates investment for the top five AI hyperscalers will increase from around $443 billion in 2025 to approximately $602 billion in 2026. Although the take-up of office space by AI firms still only accounts for a relatively small percentage of total office leasing in the UK, its importance is very likely to grow in the coming years.

With regards to the fear that, by eradicating the need for humans, AI will leave swathes of office space unoccupied, a recent report from Catella APAM argues the market has the AI-office story "backwards" in particular for well-located prime London offices.

Citing Savills research in its first quarter 2026 Investment Market Commentary, Catella APAM says first-quarter active demand across central London reached a record 14.6 million square feet, 57% above the 10‑year average, with 47% of occupiers looking to expand and 15% looking to downsize. City prime average rents also rose 40% year‑on‑year to a record £130.80 per square foot.

Catella APAM writes that professional services and finance occupiers are committing to large London footprints and expanding space requirements, recognising that the office is "central to the human elements of work that AI cannot easily replicate". It does add that "concentration risk" in AI‑heavy submarkets remains, with the sector now accounting for 14% of central London space under offer, and clusters such as Shoreditch and the Knowledge Quarter particularly exposed.

It argues that while well-capitalised, established occupiers such as OpenAI are likely to underpin rental performance, a larger share of smaller, cashflow-negative AI firms may not survive as the market matures. That, Catella APAM suggests, reflects a pattern seen in previous technology cycles, where early‑stage booms give way to consolidation. It says well‑connected, quality stock in traditional core markets within reach of an Elizabeth line station is expected to prove most resilient.

“The depth of the AI ecosystem is still greater in the United Kingdom, but I am convinced that Paris can win the AI battle in continental Europe," said Cevan Torossian, head of research and studies at Arthur Loyd. "Because France has significant strengths: the flagship represented by Mistral AI, which is one of the most important players in Europe; but also a deep start-up ecosystem, a solid economic fabric, very strong public support, low-carbon energy as well as an excellent pool of universities and talent.”

Like Mistral AI, which has established itself as a frontrunner in European AI since its founding in April 2023, France has set itself the goal, through its national strategy for AI, of becoming “one of the world leaders in this field of scientific disciplines and key information processing technologies”. To achieve this, the government allocated €1.3 billion between 2018 and 2022 to begin structuring research and establishing an innovation ecosystem, followed by an additional €1.1 billion between 2022 and 2025 to consolidate the initiative.

As a result of these efforts, “the number of French AI start-ups has doubled since 2021: more than 1,000 of them are active in this field in 2025 and they raised nearly €2 billion in funding in 2024,” noted the Cour des comptes, France’s supreme audit institution, in an oversight report published at the end of last year. It added that “16 French start-ups valued at more than $1 billion (unicorns) integrate AI into their value proposition” and that “France is the leading European country in terms of foreign investment projects in AI, and the leading European host of research and decision-making centres" for global AI leaders.

Further evidence of this promising momentum is that AI was the top investment sector at the ninth edition of the Choose France summit, where €93 billion in investments was pledged by major international groups such as Brookfield, SoftBank, Hewlett Packard Enterprise, Databricks, Oracle, Salesforce and SAP. These projected investments are directed both toward the infrastructure and equipment necessary for AI, such as data centres, and toward the development of skills and software.

For Paris and its office market, where the majority of French technology companies are located, the emergence of an AI ecosystem appears as a rare ray of sunshine in a rather cloudy sky. Indeed, while the city's leasing market saw take-up fall by 9% in 2025 and recorded its worst start to the year since the 2002–2004 period, several of its rare large-scale transactions were signed by tech players.

Starting with Mistral AI, which signed a lease in the autumn with Icawood for a headquarters across 24,600 square metres in the Marcadet-Belvédères building at 92-104 rue des Poissonniers, in the 18th arrondissement of Paris, at a rent of €650 per square metre per year. According to Business Immo's information, the decacorn, with its €1.7billion fundraising completed last September giving it decacorn status by bringing its valuation to €11.7 billion, is expected to move into this new building during the year, developed from a former SNCF warehouse by developer WO2 and the architecture firm ChartierDalix.

In recent weeks, two leasing transactions have been signed in the heart of the capital by AI companies. At 24 rue du Sentier, in the 2nd arrondissement, AG Real Estate leased 3,500 square metres of office space for nine years, based on a headline rent of €885 square metres a year, to the subsidiary of a major CAC40 industrial and technology group. According to CFNews, this future occupier is believed to be Safran.AI. Further west, OFI Invest Real Estate has signed a nine-year lease with the French software publisher ChapsVision for the Soco building, a 5,550-square-metre asset at 44-48 rue Saint-Lazare, in the 9th arrondissement of Paris.

“Some AI companies expect discretion and confidentiality from their buildings, but also the talent attraction capacity provided by a good location – which is why they primarily search within the triangle linking the Opéra district to the west, South Pigalle to the north and Silicon Sentier to the east – and the ability to accommodate workforce growth,” said Torossian.

Behind a few engines such as Mistral AI or the American software publisher Datadog – which signed a prelet in the autumn to occupy 20,442 square metres in the M building, currently being renovated by Norges Bank Investment Management in the 1st arrondissement, at a rent of €1,200 per square metre – hundreds of young technology companies are still in their early stages and could become new office tenants in the months and years to come.

“AI players are experiencing the same dynamic as the tech sector more broadly: they start with small teams and very strong growth prospects, and will favour central Paris and will initially be large consumers of coworking spaces before seeking their own real estate solution,” said Yannis de Francesco, executive director, offices France at JLL.

“Many AI companies are currently housed within coworking spaces or incubators, so they have not yet appeared in leasing transactions, he adds. "But it will come, and they will most likely continue to do so in the centre of Paris.”

For the Paris market, “AI somehow represents the next growth driver, after an initial phase around 10 years ago when technology players such as BlaBlaCar, Deezer or Facebook had leased substantial spaces,” said Torossian, adding that 727 of the 1,137 French AI start-ups listed by the France Digitale association are based in the Île-de-France region and that 16% of them already have more than 50 employees.

“We are surely in a market moment when we will see increasingly large transactions emerge from this sector, especially since the majority of tech players are currently making the shift towards AI," he concluded. Which could possibly validate the somewhat bold bets made by some investors who carried out value-add operations in the east and north of the Paris central business district.

Munich is cementing its dominance as Germany’s leading AI and technology hub. While demand declined in nearly all major office markets during the first quarter, the Bavarian capital is experiencing an AI-driven boom. This is shown by figures from BNP Paribas Real Estate, which the German news team at Thomas Daily has obtained exclusively: no other location is benefiting as much from the technology sector’s drive for expansion as Munich.

In the first quarter alone, technology companies leased 97,900 square metres, more than half of the total space take-up of 172,000 square metres. With a 57% share, the tech sector, which includes companies from the information and communications industry as well as tech firms in industrial and healthcare, has reached a new record high. By comparison, technology firms account for a 28% share across the eight largest German office markets combined. In 2025, technology take-up in the city had reached 196,500 square metres, accounting for 34% of the total. Across the top eight markets combined, tech companies had leased 166,900 square metres, or just 18% of total take-up.

Software company JetBrains secured the largest deal since the start of the year: the developer of intelligent tools for programmers secured 21,500 square metres at Tucherpark, while it has 14,000 square metres available at its existing location in Munich. The AI company’s expansion exemplifies the dynamic growth in the area, which is being developed into a new urban district by Commerz Real and Hines. An AI data centre has been in operation in Tucherpark since February, after Operator Polarise leased 10,700 square metres for this purpose. "With JetBrains, we are further emphasising Munich’s status as a high-tech hub,” said Mario Schüttauf, managing director of Commerz Real.

A key advantage of Munich is the close integration of research and business. Universities, research institutions, and global tech corporations form an ecosystem that fosters innovation and exerts international influence.

In addition to Tucherpark, which is north of the Old Town near the Englischergarten, other neighborhoods are coming into the industry’s focus. In the Werksviertel district near Ostbahnhof, new office spaces such as the 16,000-square-metre “Lovt Vibes” and the Monaco project are under development. The Neue Balan campus is also undergoing dynamic growth: the Chinese technology group Sungrow has leased 4,400 square metres there for its German headquarters. Siemens Energy moved into over 5,000 square metres in 2025.

Among the established technology hubs in Munich are Parkstadt Schwabing and Maxvorstadt. Amazon moved into its headquarters in Parkstadt at the beginning of the year, moving to Anni-Albers-Straße 21, which spans approximately 45,000 square metres. Microsoft also has its German headquarters in the district. In Maxvorstadt, often referred to as “Silicon Maxvorstadt”, Apple is expanding its chip centre at the corner of Karlstraße and Seidlstraße, and Google’s new development centre in the former Postpalast on Arnulfstraße, with over 30,000 square metres of office space, is scheduled to be completed this year.

Outside the city centre, Garching is attracting technology companies with the Technical University campus, several research institutions, and the airport. At the airport, the Technical University of Munich and the robotics manufacturer Neura Robotics recently leased over 2,000 square metres on the LabCampus for a robotics learning centre.