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19th century style residential buildings in the historic center of Paris, France.
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Europe’s real estate sector is poised for further recovery in 2025 as investment activity picks up and growth returns in key market segments, analysts have predicted.
A gradual increase in transactions in 2024 seems to gain pace in the next 12 months, with further reductions in interest rates seen to reduce pressure on the sector and revive lackluster growth from recent years.
Real estate investment activity is now expected to increase by 15% next year in the UK and other major European markets, according to Real Estate. stop CBRE, which described 2025 as a “pivotal” year for the sector.
“All property capital values show the first signs that they have reached a turning point, which is expected to gather momentum throughout the year ahead,” said Jennet Siebrits, CBRE’s head of research in the United Kingdom. “Our forecasts indicate competitive returns across all property segments, with prime assets expected to deliver the strongest performance.”
Offices
The office sector in Europe is seen recovering more next year, as the occupation increases with the mandates back to the office.
That will push leasing levels closer to historical averages compared to their anemic rates in recent years, according to CBRE.
The recovery in the sector will be polarised, however, with rents and valuations diverging between “the best and the rest”, M&G Investments said in December. perspective.
Supply of prime or Grade A office space will remain limited and in high demand, while interest in secondary assets will remain low, he added.
Residential
The residential market is also positioned for greater activity next year as borrowing costs fall further, analysts agree.
Average asking prices are expected to rise 4% by the end of 2025 – an increase on recent years but in line with the long-term average, according to Rightmove. Meanwhile, rents remain high as supply constraints persist.
Among prime real estate, price growth will continue as well, maintaining Europe’s status as a global wealth center.
Stockholm, Marbella and Madrid are seen leading that charge, recording price growth of more than 5%, Knight Frank noted in its residential premiere. perspective by 2025. Meanwhile, London and Paris remain the main luxury markets despite political flux and a clampdown on the uber-rich, he said.
Beds and sheds
Elsewhere, demand for operational real estate – 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 the structural trends – such as digitization and demographic changes – will be key to differentiate between winners and losers.
Key trends for 2025
Investors will also be paying attention to a few key trends that could impact the real estate market next year.
Incoming sustainability targets in the UK and Europe will require strong coordination between occupiers, owners, investors and lenders, while new build targets could create more opportunities in key markets.
Artificial intelligence is poised to become more critical for the sector, with 85% of respondents to a PwC 2024. survey saying that they expect AI to have some, or a large, impact on all areas of real estate in the next five years.
That 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.
