European Real Estate Market set for Gradual Recovery in 2025, Says CBRE

The European real estate market is poised for a gradual recovery in 2025, according to CBRE’s European Real Estate Market Outlook 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 leasing activity across most sectors.

Tasos Vezyridis, Executive Director and Head of Thought Leadership for Europe at CBRE, commented: “2024 marked a period of adjustment for the European real estate market. 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 2025, investment activity will increase, with more assets coming to market, supported by improved 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. Lower cost of capital will also be accretive to returns and support increased investment volumes. Leasing activity is also expected to pick up particularly in the latter half 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.”

Sector Overview

• The living sector is now the largest asset class in Europe, and its prominence is set to continue. CBRE highlights an ongoing housing shortage, with 9.6 million new homes needed to meet demand amid declining construction permit levels. Rising rental costs and increased privatisation are expected to worsen affordability challenges for tenants. Despite these challenges, the build-to-rent market and Purpose-Built Student Accommodation (PBSA) are anticipated to attract sustained investment.
• Leasing activity in the logistics sector is projected to increase throughout 2025, especially in the second half according to CBRE. Vacancy rates are expected to stabilise as expansion plans proceed, though rental growth is likely to moderate due to evolving tenant dynamics. Prime and Grade A spaces will continue to see strong investor interest, particularly for larger ticket blocks.
• CBRE expects a recovery in office investment as debt availability improves and lending margins stabilise. Investor appetite for refurbishing core-plus or value-add assets into core properties is set to increase. Leasing volumes are forecast to rise by 5–10% over the year, nearing 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 positioned for a resurgence in prime shopping centre transactions as returns become increasingly attractive. CBRE cited that while consumer fundamentals are expected to improve at a moderate pace, retailer expansion plans should support steady rental growth. Retail parks, high street assets, and prime shopping centres are likely to outperform, reflecting sustained demand for quality retail spaces.
• The European hotel and tourism sector continued to exhibit positive momentum, with steady growth expected in 2025. CBRE believes popular markets such as Greece, France, Italy, and Spain are particularly well-positioned for stronger occupancy and average daily rates. Robust international demand and travel from other regions such as the U.S. is projected to sustain growth in revenues per average room. Hotel investment activity should therefore remain strong, supported by favourable return prospects and increased allocation to the sector.
• Data centre investment opportunities are set to grow, with several 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 by over 10% 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 a record 20% year-on-year.

Read the full report.