Europe’s real estate sector is poised for further recovery in 2025, as investment activity picks up and growth returns across key market segments, analysts have predicted.
A gradual uptick in transactions in 2024 looks set to gain pace in the coming 12 months, with further interest rate reductions seen easing pressure on the sector and reviving lackluster growth from recent years.
Real estate investment activity is now forecast to increase 15% next year across the U.K. and other major European markets, according to real estate firm CBRE, which has dubbed 2025 a “pivotal” year for the sector.
“All property capital values are showing early signs that they’ve reached a turning point, which is expected to gather momentum throughout the year ahead,” Jennet Siebrits, CBRE’s head of U.K. research, said. “Our forecasts indicate competitive returns across all property segments, with prime assets expected to deliver the strongest performance.”
Offices
Europe’s office sector is seen recovering further next year, as occupancy rises alongside return-to-office mandates.
That will push leasing levels closer to historic averages compared to their anaemic rates over recent years, according to CBRE.
Recovery in the sector will be polarized, however, with rents and valuations diverging between “the best and the rest,” M&G Investments said in a December outlook.
Primary or Grade A office supply will remain constrained and in high demand, while interest in secondary assets will remain low, it added.
Residential
The residential market is also positioned for greater activity next year, as borrowing costs fall further, analysts agreed.
Average asking prices are expected to rise 4% by the end of 2025 — an uptick on recent years but in line with the long-term average, according to Rightmove. Meanwhile, rents will remain elevated as supply constraints persist.
Among prime real estate, price growth is set to continue, too, maintaining Europe’s status as a global wealth hub.
Stockholm, Marbella and Madrid are seen leading that charge, recording price growth of more than 5%, Knight Frank noted in its prime residential outlook for 2025. Meanwhile, London and Paris will remain leading luxury markets despite political flux and a clampdown on the uber wealthy, it said.
Beds and sheds
Elsewhere, demand for operational real estate — or beds and sheds — will remain strong, with particular opportunities in logistics hubs, student accommodation and hospitality.
But, analysts warn that understanding structural trends — such as digitization and demographic shifts — will be key to differentiating between the winners and the losers.
Key trends for 2025
Investors will also be closely watching a few key trends that could impact the real estate market next year.
Incoming sustainability targets in the U.K. and Europe will require strong coordination between occupiers, landlords, investors and lenders, while new construction targets could create more opportunities in key markets.
Artificial intelligence is set to become more critical to the sector, with 85% of respondents to a 2024 PwC survey saying they expect AI to have some, or a large impact, on all areas of real estate over the next five years.
That could include current use cases, such as maximizing hotel occupancy and predicting why a tenant selects one property over another, or future applications like property management and market analysis, the report said.