The European real estate market looks to 2025 with optimism

(February 2025) | According to the European Real Estate Market Outlook 2025 by CBRE (Coldwell Banker Richard Ellis), the world’s largest commercial real estate services and investment firm, the European real estate market is poised for a gradual recovery in 2025. While challenges persist, real estate investment is expected to rise as the bid-ask spread narrows and the occupier market strengthens in the second half of the year, driven by an increase in leading activity across most sectors.
“2024 marked a period of adjustment for the European real estate market,” says Tasos Vezyridis, Executive Director and Head of Thought Leadership for Europe at CBRE. “With inflation easing towards target levels and interest rates peaking, we are headed to a place of much welcomed stabilisation. This year, we anticipate economic growth to improve as lower interest rates encourage corporate investment and rising real incomes bolster consumer confidence.”

In 2024, inflation continued to fall towards target levels, energy prices had less impact on growth and interest rates peaked, prompting central banks to start cutting policy interest rates in the second half of the year. Despite this, economic growth was only marginally stronger than in 2023 and property investment remained subdued, but with a slight uptick. In 2025, investment activity will increase, with more assets coming to market due to favourable financing conditions.
“Real estate investment is set to rise as buyer and seller expectations increasingly converge, the flow of product to the market picks up and more stable pricing allows for investors to underwrite returns,” continues Tasos Vezyridis. “Lower cost of capital will also be accretive to returns and support increased investment volumes. Leasing activity is expected to pick up, especially in the latter part of the year, again predominantly across the best-in-class space.”

Sustainability will continue to be a pervasive theme, with tighter and more complex reporting and disclosure requirements in Europe affecting all sectors. The living sector is now the largest asset class in Europe and its prominence is set to continue. CBRE highlights a worsening of Europe’s housing shortage, with an estimated 9.6 million new homes needed to meet demand amid falling permit levels for new construction. Rising rental costs and increased privatisation will exacerbate affordability issues for tenants in 2025. Despite these challenges, CBRE’s analysis suggests that the build-to-rent market and purpose-built student accommodation (PBSA) will continue to attract long-term investment.

CBRE expects leasing activity in the logistics sector to pick up through 2025, particularly in the second half of the year. Vacancy rates should stabilise as expansion plans proceed, although rental growth is likely to moderate due to evolving tenant dynamics. Prime and Grade A spaces will continue to attract strong investor interest, particularly for larger assets.

CBRE expects a recovery in office investment as debt availability improves and lending margins stabilise. Investors are showing growing interest in refurbishing existing properties into high-quality spaces with additional potential. Leasing volumes are forecast to rise by 5–10% over the course of the year, approaching historical averages. Vacancy rates in key cities such as Madrid, Amsterdam and Warsaw are already showing signs of peaking or declining. However, the gap between prime and lower-quality properties is expected to widen further.

The retail market is likely to see a resurgence in prime shopping centre transactions as returns become increasingly attractive. While CBRE expects consumer fundamentals to improve at a more moderate pace, retailer expansion plans should support steady rental growth. Retail parks, high street assets and prime segment shopping centres are likely to outperform, reflecting sustained demand for quality retail spaces.

The European hotel and tourism sector continues to exhibit positive momentum, with steady growth expected in 2025. CBRE believes that hotels in popular tourism markets such as Greece, France, Italy and Spain are well-positioned for stronger occupancy levels and average daily rates. Robust international demand, particularly amongst US travellers, will further sustain growth in revenue per available room. The hotel investment landscape is expected to remain positive, supported by favourable return prospects.

Finally, data centre investment opportunities are on the rise, with a number of powered-shell projects launched in 2024. CBRE anticipates that demand for colocation data centre space will outstrip new supply in 2025, driven by hyperscalers and providers of AI and high-performance computing services. Providers may increase prices in 2025 by 10% or more in certain markets, such as London, to offset higher build costs and limited available space. Despite power supply constraints, data centre capacity in Europe’s five largest markets is expected to grow by 20% year-on-year.