19th century style apartment buildings in the historic center of Paris, France.
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Analysts predict that the European real estate sector will be poised for further recovery in 2025 as investment activity picks up and growth returns to key market segments.
The gradual increase in transaction volume in 2024 looks set to gain momentum over the coming 12 months, with further interest rate cuts easing pressure on the sector and reviving the sluggish growth of recent years.
Property investment activity is forecast to grow by 15% next year in the UK and other major European markets reliable CBRE, which described 2025 as a “breakthrough” year for the sector.
“All property equity values are showing early signs that they have reached a turning point, which is expected to gain momentum throughout the coming year,” said Jennet Siebrits, CBRE's UK head of research. “Our forecasts indicate competitive returns across all property segments, with the best assets expected to deliver the best performance.”
Offices
The office sector in Europe is visible continue to recover next year as occupancy increases and people need to return to their positions.
According to CBRE, this will bring leasing levels closer to historical averages compared to their anemic rates in recent years.
However, the sector's recovery will be polarized, with rents and valuations diverging between the 'best of the breed and the rest', M&G Investments said in a December report perspectives.
The supply of primary or Class A office space will remain limited and in high demand, while interest in secondary assets will remain low, he added.
Housing
Analysts agreed that the housing market is also prepared for greater activity next year as borrowing costs continue to decline.
Average asking prices are expected to increase by 4% by the end of 2025, which Rightmove says is an increase on recent years but in line with the long-term average. Meanwhile, rents will remain elevated due to continued supply constraints.
For prime real estate, price increases will also continue, helping to maintain Europe's status as the world's wealth center.
Stockholm, Marbella and Madrid are seen leading this ranking, seeing price increases of over 5%, noted Knight Frank in its best housing report perspectives for 2025. Meanwhile, London and Paris will remain the leading luxury goods markets despite political fluctuations and repression against the richest, he said.
Beds and sheds
Elsewhere, demand for operational real estate – i.e. beds and sheds – will remain strong, with particular opportunities in logistics hubs, student accommodation and hospitality.
Concrete apartment building covered with green plants, Madrid, Spain
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However, analysts warn that understanding structural trends – such as digitalization and demographic changes – will be key to distinguishing winners from losers.
Key trends for 2025
Investors will also be closely watching several key trends that may impact the real estate market next year.
The upcoming sustainability targets in the UK and Europe will require strong coordination between tenants, landlords, investors and lenders, while new construction targets could create more opportunities in key markets.
Artificial intelligence will become increasingly important for this sector – 85% of respondents to PwC's 2024 survey. questionnaire saying they expect AI to have some or major impact in all areas of real estate over the next five years.
According to the report, this could include current applications 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.