2024 was a transitional year for Europe, marked by efforts to stabilise growth and manage inflation amid geopolitical tensions and post-pandemic realities. We expect 2025 to reap the benefits of strategies initiated in 2024, with a shift from crisis management to growth-oriented policies.
Eurozone GDP is forecast to grow by 1.2% year on year, with Ireland, Central and Eastern Europe, Spain and the Nordic region leading performance. Germany and France look set to face continued struggles due to fiscal constraints and industrial recalibration. Region-wide economic risks include potential protectionist US trade policies that could strain transatlantic relations. The European Central Bank (ECB) may well opt for monetary easing to support modest recovery, but restrictive fiscal policies may offset any gains, keeping economic momentum subdued in the near term.
Investment recovery began in late 2024
Despite subdued economic momentum, European real estate investment activity rebounded strongly towards the end of 2024. Preliminary fourth quarter data indicates volumes of €53 billion, the highest quarterly level since 2022 and a 31% year-on-year increase. The ECB’s September rate cut played a pivotal role in this resurgence, boosting investor sentiment and improving financing conditions. Sellers, particularly European open-ended funds under redemption pressure, increased asset supply, while larger transactions became more common due to easing loan conditions.
Total European real estate investment volumes for 2024 are estimated at €174 billion, a 17% increase on the previous year. Activity was fairly evenly distributed across asset classes, with logistics (23%), living sectors (19%), and retail (17%) leading the market. The office sector accounted for 22%, a historic low.
European real estate investment set to grow
Investment volumes are projected to grow by 23% in 2025, to €214 billion. This forecast trajectory is supported by buyer-seller alignment, growing cross-border activity and steady demand for income-generating assets. Across all sectors, we foresee heightened interest in well-located secondary assets, particularly those offering opportunities for active management strategies such as revaluation, repurposing or repositioning to align with ESG standards. Diversification will remain a priority for investors seeking to mitigate sector-specific risks, meaning all asset classes should benefit from the modest market recovery.
The office market is set for a gradual recovery, driven by companies upgrading spaces to attract talent and a resurgence in tech sector demand. Limited Grade A supply and constrained development pipelines are expected to fuel rental growth, pushing prime rents up by 2.7%. With demand improving, value-add investors are targeting secondary assets for repositioning or ESG-compliance upgrades.
Retail investment is expected to benefit from a boost in retail sales growth, driven by easing inflation and stronger consumer purchasing power. Grocery shops, prime high street assets and retail warehouses will remain particularly attractive. But with buyers and sellers unlikely to find a consensus on pricing, at least in the short term, deals will not be easy to strike.
Sectors to watch: logistics and hotels
The logistics sector remains a key focus for investors, due to low vacancy rates and a relative lack of new developments. Although capital flows are now moderating, after years of exceptional growth, stabilising activity suggests ongoing investor interest. However, geopolitical uncertainties, including potential disruptions to trade policies, present a significant risk to this outlook.
Hotels will continue to perform strongly, supported by robust demand and operational resilience. While growth in revenue per available room is expected to normalise, more realistic pricing expectations and declining borrowing costs should support liquidity and transaction volumes. The sector remains attractive to private equity buyers seeking opportunities in a stable market.
In the living sectors, urbanisation trends and tight mortgage conditions are driving demand for rental properties, supporting steady occupancy and rental growth. Institutional investors will target build-to-rent projects, especially ESG-compliant assets. Student housing and senior living will attract growing attention, supported by rising international student numbers and ageing populations.
European prime yields stabilised in late 2024, with early signs of inward shifts in key sectors such as prime logistics, CBD offices and high-street retail. As monetary policy eases further in 2025, financing conditions should improve, stimulating renewed investor interest and triggering yield compression across various asset classes by the third quarter. Shopping centres may see modest yield increases early in the year but, overall, the trajectory signals a return to favourable pricing conditions.
