The real estate landscape in Europe is primed for a notable comeback in 2025, following a period of stagnation. Analysts suggest that the sector is on the brink of revitalization, fueled by a rebound in investment activity across vital market segments. The forecast for 2024 points to a gradual increase in real estate transactions, with expectations that this momentum will accelerate into 2025. A predicted reduction in interest rates stands to relieve some of the pressure that has weighed down growth in recent years, emerging as an important catalyst for rejuvenating the real estate market.
According to CBRE, a leading real estate firm, a substantial rise in investment activity—estimated at 15%—is anticipated next year across major European markets, including the United Kingdom. This uptick is heralded as a defining moment for the sector, as highlighted by Jennet Siebrits, CBRE’s head of U.K. research. Siebrits notes that early indicators suggest that capital values across property types have begun to stabilize, signaling a potential turning point that is projected to gain traction throughout 2025. With expectations for competitive returns across various property segments, prime assets are forecast to yield the most remarkable performance amidst changing market dynamics.
The office sector, in particular, is expected to witness robust recovery as company mandates push for a return to in-person work. This resurgence is likely to drive leasing activities back toward historical averages, overcoming the muted performance seen in previous years. However, a dichotomy is anticipated within the sector; while demand for Grade A office spaces will remain buoyant, secondary assets may continue to lag due to lackluster interest. M&G Investments has suggested in its latest outlook that the variance in demand will become increasingly pronounced, favoring high-quality offerings in a market still grappling with oversupply challenges.
In the residential sector, experts foresee a promising shift as well. A decrease in borrowing costs is expected to stimulate greater market activity, and average asking prices are projected to increase by approximately 4% by the close of 2025. This growth aligns with long-term trends, suggesting a recovery that, while welcomed, is tempered by the realities of sustained supply constraints. Prime real estate markets in cities like Stockholm, Marbella, and Madrid are anticipated to outperform, potentially observing price increases north of 5%, according to insights from Knight Frank’s residential outlook. Moreover, despite political uncertainties and regulatory pressure on high-net-worth individuals, iconic cities such as London and Paris are poised to retain their status as premier luxury markets.
Another significant trend is the increasing demand for operational real estate, often referred to as “beds and sheds.” This segment is likely to flourish, especially within sectors such as logistics, student accommodations, and hospitality. The enduring need for these types of real estate underscores a fundamental shift in how space is utilized and highlights potential growth pockets for investors.
Crucially, analysts emphasize the importance of recognizing and responding to structural trends that may shape the future of the real estate landscape. Factors such as digitization and demographic transitions are likely to differentiate successful investments from those that falter. As sustainability objectives gain prominence across the U.K. and Europe, collaboration among stakeholders—landlords, tenants, investors, and financiers—will become essential to meet these evolving benchmarks. New construction initiatives may further unlock opportunities in targeted markets, reinforcing the need for strategic foresight.
While 2025 promises to usher in a wave of optimism for Europe’s real estate sector, stakeholders must navigate complex market dynamics and evolving trends. Comprehensive understanding and adaptability will be pivotal for navigating both opportunities and challenges in an ever-changing landscape.