Outdated offices: Milan tops the European rankings for risk, with 86 per cent in need of refurbishment

The result is an increasingly polarised market: on the one hand, prime properties that continue to attract tenants and investors and can command a premium. On the other hand, there are less efficient properties, often in less desirable locations, which are seeing weaker demand and a growing discount (the so-called ‘brown discount’) applied by the market to assets with poorer environmental and functional characteristics. Moreover, bringing these properties up to standard comes at a cost.

In the European office property market, comprehensive refurbishment projects can require capital expenditure in the region of 5–12 per cent of the asset’s value. For buildings suffering from more severe forms of physical or functional obsolescence, a repositioning project may require investment in excess of 70 per cent of the asset’s value.

This is where sustainability ties in with the financial issue. A company with obsolete properties must decide how much capital to allocate to their refurbishment, knowing that the benefits will only materialise in the medium to long term. “If capital expenditure is financed through new debt, this can increase financial leverage and put pressure on cash flows in the meantime,” adds Munoz. In the new European property cycle, sustainability is therefore no longer merely a matter of reputation or ESG targets, but a prerequisite for maintaining occupancy rates, rent levels, asset values and access to credit.

“In a context where technology and AI are transforming business models,” explained Nicolò Bellavigna, Head of Office Tenant Representation at Savills, “the competitiveness of businesses will increasingly depend on the quality and speed of decision-making processes. For this reason, the physical office will play an increasingly central role as infrastructure for business competitiveness.”

According to Savills’ analysis of the Italian market, since 2022, €1.5 billion has been allocated to the conversion of offices into alternative uses. The predominant uses are twofold: hospitality (56 per cent) and residential (40 per cent). Rome is focusing on hotels, whilst Milan is focusing on residential properties. The reasoning is simple: secondary office buildings from the 1980s and 1990s, which are poorly located and energy-inefficient, cannot compete with newer developments. But those very same properties, purchased at a significant discount, can be converted into hotels, student accommodation, cohousing or high-end flats. The spread between yields on prime office properties (4 per cent in Milan and 4.5 per cent in Rome) and those on secondary assets reached 340 basis points in the first quarter of 2026. This spread reflects both the perceived risk associated with second-tier offices and the opportunity for those purchasing such assets at a discount to redevelop them.