Europe's real estate recovery looks set to pick up steam in 2025

Europe's real estate sector is poised for further recovery in 2025, as investment activity picks up and growth returns across key market segments, analysts have predicted.

A gradual uptick in transactions in 2024 looks set to gain pace in the coming 12 months, with further interest rate reductions seen easing pressure on the sector and reviving lackluster growth from recent years.

Real estate investment activity is now forecast to increase 15% next year across the U.K. and other major European markets, according to real estate firm CBRE, which has dubbed 2025 a "pivotal" year for the sector.

"All property capital values are showing early signs that they've reached a turning point, which is expected to gather momentum throughout the year ahead," Jennet Siebrits, CBRE's head of U.K. research, said. "Our forecasts indicate competitive returns across all property segments, with prime assets expected to deliver the strongest performance."

Europe's office sector is seen recovering further next year, as occupancy rises alongside return-to-office mandates.

That will push leasing levels closer to historic averages compared to their anaemic rates over recent years, according to CBRE. 

Recovery in the sector will be polarized, however, with rents and valuations diverging between "the best and the rest," M&G Investments said in a December outlook.

Primary or Grade A office supply will remain constrained and in high demand, while interest in secondary assets will remain low, it added.  

The residential market is also positioned for greater activity next year, as borrowing costs fall further, analysts agreed. 

Average asking prices are expected to rise 4% by the end of 2025 — an uptick on recent years but in line with the long-term average,