Real Estate Outlook 2025

Macro & capital markets

• Rates: The ECB paused after multiple cuts; key rates were held on 24 July 2025 with inflation near target—so financing conditions are steadier, but not loosening fast. Markets expect “hold” into autumn barring surprises.

• Activity pulse: Eurozone PMIs turned expansionary into August, pointing to modest growth support for occupier demand.

• Investment volumes: Europe’s recovery resumed in 2024 led by living, industrial & hotels; offices lag. Expect a gradual pickup in 2025 as bid–ask gaps narrow.

Sector-by-sector

Logistics/Industrial

• Vacancy trending stable-to-lower in 2025 on thin new supply; leasing should re-accelerate in H2; rent growth cools from prior peaks but remains positive in undersupplied nodes.

Living (PRS/Student/Senior)

• Structural undersupply persists; major cities forecast net population growth and constrained pipelines—keeping occupancy tight and supporting rent growth where regulation allows.

Hotels

• Another active year: lenders’ maturities + clearer debt pricing are set to lift volumes; EMEA participation healthy as urban markets lead.

Retail

• Stabilization continues; prime convenience and dominant centers show resilient footfall and selective rent growth; risk still bifurcated by asset quality.

Offices

• Bifurcation remains: CBD/prime sees rental growth and early signs of yield compression; peripheral/older stock faces higher vacancy and capex drag. Aggregate European vacancy likely peaks ~9% in 2025 as completions drop.

• Evidence of selective recovery in top submarkets (e.g., London CBD clusters) highlights the “flight-to-quality” theme.

• The recast EPBD (Directive (EU) 2024/1275) is now in force; the Commission issued implementation guidance on 30 June 2025 ahead of 2026 national transposition—expect tightening MEPS and renovation planning to shape capex and valuations (brown discounts vs. green premia).

What this means for investors in 2025

• Core+ tilt to scarcity: Target prime logistics near tier-1 cities, living in supply-choked metros, and high-spec CBD offices where replacement cost and limited new starts support rents.

• Value-add via retrofit: EPBD-driven upgrades (energy, HVAC, on-site renewables) can unlock leasing and yield compression; under-invested non-prime offices/retail need capex or conversion plans.

• Hotels for cycle timing: Lean into urban assets with capex deferred during 2020–23 and clearer NOI visibility; supply additions are still muted.

• Watch the risks: Policy/tariff headlines, uneven hiring, and still-elevated vacancy outside CBDs could slow the rebound; underwriting should stress refinancing and capex