The real estate market in Europe is predicted to regain momentum in 2025.

• The real estate sector in Europe is expected to experience a recovery in 2025, with investment increasing and growth returning across various market segments, according to analysts' predictions.
• Lackluster growth in the sector over recent years may be revived with further anticipated interest rate reductions easing pressure.
• According to CBRE, the real estate firm, investment activity is predicted to rise by 15% next year, with the office, residential, and logistics markets all projected to expand.

The real estate sector in Europe is expected to experience a recovery in 2025, as investment activity increases and growth is observed in various market segments, according to analysts' predictions.

In the next 12 months, a gradual increase in transactions is expected to accelerate, with interest rate cuts easing pressure on the sector and reviving sluggish growth from previous years.

The real estate investment market is predicted to rise by 15% in the U.K. and major European markets in the next year, as stated by CBRE, which has labeled 2025 as a "critical" year for the industry.

"Jennet Siebridts, CBRE's head of U.K. research, stated that all property capital values are showing early signs of a turning point, which is expected to gain momentum in the year ahead. 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 predicted to recover more next year, with an increase in occupancy and the implementation of return-to-office mandates.

According to CBRE, leasing levels are expected to reach historic averages, compared to their recent sluggish performance.

M&G Investments predicts that recovery in the sector will be uneven, with rents and valuations differing significantly between top-performing and underperforming properties, according to a December outlook.

While interest in secondary assets will remain low, primary or Grade A office supply will remain constrained and in high demand.

Residential

Analysts agreed that the residential market will experience increased activity next year due to a decrease in borrowing costs.

According to Rightmove, the average asking prices are predicted to increase by 4% by the end of 2025, which is higher than recent years but still in line with the long-term average. However, rents will continue to be high due to ongoing supply constraints.

Europe's status as a global wealth hub will be maintained as prime real estate continues to experience price growth.

Knight Frank has identified Stockholm, Marbella, and Madrid as the top cities for prime residential growth of over 5% in its 2025 outlook. However, London and Paris will still be leading luxury markets, despite political instability and a crackdown on the wealthy, according to Knight Frank.

Beds and sheds

The demand for operational real estate, such as beds and sheds, will remain strong, particularly in logistics hubs, student accommodation, and hospitality.

To distinguish between the successful and unsuccessful businesses, it is crucial to comprehend the underlying patterns, including digitization and demographic changes.

Key trends for 2025

Next year, key trends will closely impact the real estate market, and investors will be closely watching them.

The achievement of sustainability targets in the U.K. and Europe will necessitate close collaboration among occupiers, landlords, investors, and lenders. Meanwhile, new construction targets may present fresh prospects in significant markets.

Over the next five years, AI is expected to have a significant impact on all areas of real estate, according to a 2024 PwC survey, with 85% of respondents stating this expectation.

The report stated that the AI assistant could be used for various purposes, including maximizing hotel occupancy and predicting tenant preferences, as well as future applications such as property management and market analysis.