European Real Estate Market Gaining Momentum

Cushman & Wakefield has published its EMEA Real Estate Outlook for 2025, highlighting that improving economic indicators—such as GDP growth and labor market resilience—combined with more favorable financing conditions, are expected to drive positive momentum in the European real estate market.

Analysts emphasize that market activity will vary across sectors, and adapting to economic, environmental, and technological trends will be crucial for long-term success. Prime office rental growth is expected to lead the market, with Cushman & Wakefield forecasting an average 2.1% increase across Europe in 2025, followed by retail and logistics at 1.9%.

Offices: Quality Over Quantity

In 2024, more than half of Europe’s office markets, including London, Brussels, Madrid, and Barcelona, saw stable demand and strong occupancy rates. The market is increasingly focused on quality and prime locations, with Class A office space accounting for over 50% of total leasing activity in major cities (compared to just over 40% in 2019). A clear gap between vacancy rates in central districts and secondary areas has emerged.

Cushman & Wakefield forecasts 2.1% office rent growth in 2025, followed by 1.6% in 2026. Meanwhile, new office supply is expected to decline from 5 million square meters in 2024 to 4.8 million in 2025, and 3.4 million in 2026.

Despite weak investment activity, which accounted for just over 20% of total market volume in 2024, analysts observe a growing number of investors evaluating acquisitions and an increase in available assets, including larger properties, which suggests cautious optimism for 2025.

Simon Jeschioro, Head of Capital Markets and Investment Advisory at Cushman & Wakefield Germany, noted that core locations are leading the recovery, with a significant increase in demand for larger office properties. Investor interest in office buildings is growing, and across EMEA, yields are expected to decline by approximately 30 basis points in 2025-2026, with the UK and Germany seeing the steepest declines (around 40 basis points).

The need to reduce carbon emissions and address climate risks will continue shaping long-term investment strategies. EU regulations are likely to impact asset valuations, leasing conditions, and tenant demand. As a result, repurposing and asset conversion will play an increasingly important role, particularly in London and Paris, while demand for suburban office spaces may decline. Adaptive reuse will be a viable solution for outdated office stock.

Logistics: From Stability to Strength

A positive macroeconomic outlook for 2025 signals a potential turning point for the logistics and industrial sectors, as business and consumer confidence rise alongside lower interest rates and increased investor accessibility.

However, uncertainty remains—particularly regarding the potential impact of Donald Trump's second presidential term on European trade. Proposed tariffs on foreign goods could create market volatility, but analysts suggest the actual impact may be less severe than feared.

Logistics rent growth is projected at 1.9% in 2025, albeit at a slower pace than previous years. The UK, Slovakia, and Ireland are expected to be the most active logistics markets, while Czechia and the Netherlands may experience slower growth or stability. Sustainability and prime locations will remain key investment drivers.

Cushman & Wakefield predicts that logistics will continue to be a priority for investors, with investment transaction volumes increasing as market volatility declines and investor confidence strengthens. However, activity levels will depend on the availability of investment products, and yields are likely to tighten by 10-20 basis points in most markets.

Retail: A Resurgence in Investment
The retail sector has shown resilience and is now poised for recovery after several challenging years. Rising retailer activity and rental growth in 2024 have made the sector more attractive to investors, with higher yields creating new lending opportunities.

In 2025, prime high-street retail is expected to see further rental growth and a potential capital value increase of 1.9%–2.4%. As consumer spending rebounds, leading to higher foot traffic, increased expenditures, and stronger occupancy rates, investment volumes are set to rise.

However, secondary and less attractive retail locations will continue to face challenges in both market fundamentals and investor interest. High-quality, high-footfall properties, including shopping malls, luxury retail centers, and prime high streets, will be the primary beneficiaries of growing urban retail strategies.

Residential Sector: Shifting Dynamics
Europe’s housing market has long been characterized by a supply-demand imbalance, leading to sustained long-term rent and capital value growth. However, as in other sectors, sharp interest rate hikes have pressured asset valuations.

In 2025, residential development will remain challenging, contributing to lower vacancy rates across the continent. However, current data suggests the sector is poised for recovery, with pricing trends and investment activity showing signs of improvement.

Housing demand is expected to remain one of the strongest and most resilient indicators across all European real estate sectors in 2025. The Cushman & Wakefield TIME Score Index suggests that the residential sector is entering a new growth cycle, offering strong capital appreciation and total return potential for investors deploying capital strategically.

Hospitality: Rising Returns and Expansion

Since 2022, the hotel sector has shown strong performance, helping offset financing cost pressures and geopolitical uncertainties. Revenue growth is expected to slow in 2025, but this will be accompanied by a gradual increase in returns, driving higher valuations and transaction activity.

Market Poised for Recovery

Sukhdeep Dhillon, Head of Forecasting at Cushman & Wakefield EMEA, believes Europe’s real estate market is on track for recovery after several turbulent years. Stabilization in 2024, combined with positive macroeconomic forecasts, increasing business and consumer confidence, and lower interest rates, is laying a solid foundation for 2025.

"As market volatility declines, we anticipate a gradual compression in prime asset yields, signaling a positive outlook for capital appreciation and total returns. This presents promising opportunities for investors willing to deploy capital strategically," Dhillon stated.

However, the potential impact of Donald Trump’s second presidential term on the European economy remains unclear. Analysts note that real estate proved highly resilient during his first term, with core asset values rising 25%.

According to Fitch Ratings, housing prices are expected to increase globally by 1%–3% over the next two years, driven by:
- Rising real wages
- Low unemployment
- Falling inflation

In most countries, new construction is failing to keep pace with demand, leading to rising prices almost everywhere—except China and France.

Housing Market Projections for 2025:
Netherlands, Canada, Brazil, and Mexico will see the highest home price increases due to government incentives and rising wages.
Spain: 4%-6% growth in 2025 and 5%-7% in 2026, fueled by consumer confidence and falling interest rates.
Germany: 2%-4% growth over the next two years, driven by rising rents and moderate wage growth.
UK: 2%-4% growth in 2025-2026 due to lower mortgage rates and a strong labor market.
Fitch expects mortgage rates to stabilize or decline, improving housing affordability. However, demand for energy-efficient homes will rise due to high energy costs.

If inflation accelerates, central banks may tighten policies, restricting mortgage availability.
Rising insurance, maintenance, and property taxes could deter homebuyers.
Economic downturns could lead to higher unemployment and lower household incomes, weakening demand.

The European real estate market is shifting into recovery mode, offering strong investment opportunities across multiple sectors, albeit with regional variations and market-specific risks.