19th century style residential buildings in the historic center of Paris, France.
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Analysts predict that the European real estate sector will continue to recover in 2025 as investment activity increases and growth returns are realized in key market segments.
The gradual increase in transactions in 2024 is expected to accelerate over the next 12 months as further interest rate cuts ease pressure on the sector and revive weak growth of recent years.
Property investment activity is expected to increase by 15% next year in the UK and other key European markets, according to Real Estate company CBRE called 2025 a “pivotal” year for the industry.
“All property capital stocks are showing early signs of having reached an inflection point, which is expected to gain momentum over the next year,” said Jennet Siebrits, head of UK research at CBRE. “Our forecasts suggest competitive returns across all property segments, with prime properties expected to deliver the strongest performance.”
Offices
The office sector in Europe is expected to continue to recover next year as occupancy increases while return-to-office mandates emerge.
According to CBRE, this will bring lease rates closer to historical averages compared to the paltry rates of recent years.
But the recovery in the sector will be polarized, with rents and valuations diverging between “the best and the rest,” M&G Investments said in a December outlook.
The supply of primary or prime office properties will remain limited and in high demand, while interest in secondary properties will remain low, it said.
Reside
Analysts agree that the housing market is also poised for greater activity next year as borrowing costs continue to fall.
According to Rightmove, average asking prices are expected to rise by 4% by the end of 2025 – an increase on recent years but in line with the long-term average. Meanwhile, rents will remain high as supply constraints remain.
The price increase is also likely to continue for top real estate and maintain Europe's status as a global location of prosperity.
Stockholm, Marbella and Madrid are seen as front runners with price increases of more than 5%, Knight Frank noted in its prime residential property outlook for 2025. Meanwhile, London and Paris will remain leading luxury markets despite political changes and a crackdown on Uber, it said.
Beds and sheds
Elsewhere, demand for operational property – or beds and sheds – will remain strong, with particular opportunities in logistics centres, student accommodation and hospitality.
Concrete residential building covered with green plants, Madrid, Spain
Alexander Spatari | moment | Getty Images
But analysts warn that understanding structural trends – such as digitalization and demographic changes – will be key to distinguishing between winners and losers.
Important trends for 2025
Investors will also be paying close attention to some key trends that could impact the real estate market next year.
Future sustainability targets in the UK and Europe 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 increasingly important to the sector: 85% of respondents to a PwC survey in 2024 said they expect AI to have some or major impact on all areas of the real estate industry in the next five years.
These could include current use cases such as maximizing hotel occupancy and predicting why a tenant will choose one property over another, or future applications such as property management and market analysis, the report said.