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19th century style residential buildings in the historic center of Paris, France.
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According to analysts’ forecasts, the European real estate sector expects further recovery in 2025 as investment activity picks up and growth resumes in key market segments.
A gradual pick-up in transactions in 2024 looks set to gather pace over the next 12 months, with further interest rate cuts easing pressure on the sector and restoring the lackluster growth seen in recent years.
Property investment is forecast to increase by 15% in the UK and other major European markets next year, according to Property Information firm CBRE, which called 2025 a “tipping point” for the sector.
“The capital value of all real estate is showing the first signs of reaching an inflection point, which is expected to gain momentum over the next year,” said Janet Ziebrits, CBRE’s UK head of research. “Our forecasts point to competitive returns across all property segments, with prime assets expected to deliver the highest returns.”
Offices
You can see the office sector of Europe recover further next year as occupancy rises along with mandates to return to office.
According to CBRE, this will bring leasing levels closer to historical averages compared to the anemic levels of recent years.
However, the recovery in the sector will be polarised, with rents and valuations diverging between the “best and the rest”, M&G Investments said in December worldview.
The supply of prime or Class A offices will remain limited and in high demand, while interest in secondary assets will remain low, it added.
Residential
The residential real estate market also expects more activity next year as borrowing costs fall further, analysts agree.
By the end of 2025, the average asking price is expected to rise by 4% – an increase on recent years but in line with long-term averages, according to Rightmove. Meanwhile, rents will remain elevated as supply constraints persist.
Among luxury real estate, price growth will also continue, maintaining Europe’s status as a world center of prosperity.
Stockholm, Marbella and Madrid lead the way, recording price growth of more than 5%, notes Knight Frank in its main residential building. worldview for 2025. Meanwhile, London and Paris will remain the leading luxury markets despite political currents and pressure from the uber-rich, the report said.
Beds and sheds
Elsewhere, demand for operational properties – or beds and sheds – will remain strong, with particular opportunities in logistics centres, student accommodation and hospitality.
Residential concrete apartment building covered with green plants, Madrid, Spain
Alexander Spatari | Moment | Getty Images
But analysts warn that understanding structural trends — such as digitalization and demographic shifts — will be key to distinguishing between winners and losers.
The main trends for 2025
Investors will also be keeping a close eye on several key trends that could affect the real estate market next year.
Incoming sustainability targets in the UK and Europe will require strong coordination between occupiers, landlords, investors and lenders, while new build targets could create more opportunities in key markets.
Artificial intelligence will become increasingly important to the sector, with 85% of respondents recognizing PwC by 2024 survey stating that they expect artificial intelligence to have some or major impact on all areas of real estate within the next five years.
This could include current use cases such as maximizing hotel occupancy and predicting why a tenant chooses one property over another, or future applications such as property management and market analysis, the report said.
