19th century style residential apartment buildings in the historic center of Paris, France.
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The European real estate sector is poised for further recovery in 2025, as investment activity accelerates and growth returns in key market segments, analysts predict.
The gradual rise in transactions in 2024 looks set to accelerate over the next 12 months, with further interest rate cuts seen to ease pressure on the sector and revive weak growth in recent years.
Property investment activity is forecast to increase by 15% next year in the UK and other major European markets, according to property figures firm CBRE, which called 2025 a “pivotal” year for the sector.
“All property capital values are showing early signs of reaching an inflection point, which is expected to accelerate throughout the year,” said Jennet Siebrits, CBRE’s head of UK research. “Our forecasts point to competitive returns across all property segments, with prime assets expected to deliver the strongest performance.”
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You can see the European office sector recovering further next year, as occupancy increases along with back-to-work mandates.
That will move leasing levels closer to historical averages compared to their anemic rates over recent years, according to CBRE.
However, the recovery in the sector will be polarised, with rents and valuations varying between “the best and the rest”, M&G Investments said in December outlook.
Prime or Grade A office supply will remain limited and demand strong, while interest in secondary assets will remain low, it added.
Housing
The residential market is also positioned for more activity next year as borrowing costs fall further, analysts agree.
Average asking prices are expected to rise by 4% by the end of 2025 — up on previous years but in line with the long-term average, according to Rightmove. Meanwhile, rents will remain high as supply constraints remain.
Among prime real estate, price growth will also continue, maintaining Europe’s status as a global wealth center.
Stockholm, Marbella and Madrid lead the way in this price, recording price growth of more than 5%, noted Knight Frank in its premium housing outlook for 2025. Meanwhile, London and Paris will remain the leading luxury markets despite political fluctuations and pressure on the ultra-rich, it said.
Beds and sheds
Elsewhere, demand for operational properties – or beds and sheds – will remain strong, with particular opportunities in logistics hubs, student accommodation and hospitality.
Residential concrete apartment building covered with greenery, Madrid, Spain
Aleksandar Spatari | Moment | Getty Images
But analysts warn that understanding structural trends – such as digitalisation and demographic change – will be key to distinguishing the winners from the losers.
Key trends for 2025
Investors will also be keeping a close eye on several key trends that could affect the real estate market next year.
Upcoming sustainability targets in the UK and Europe will require strong coordination between tenants, landlords, investors and lenders, while new build targets could create more opportunities in key markets.
Artificial intelligence is set to become more critical to the sector, with 85% of respondents by 2024 PwC poll saying they expect artificial intelligence to have some or major impact on all areas of real estate over the next five years.
This could include current use cases, such as increasing 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.
