European Real Estate Market Outlook Mid-Year Review 2025

Despite increased uncertainty in the global economy, Europe’s consumer-led economic recovery continues, but at a slower pace, given lower levels of confidence. Following four rate cuts by the ECB earlier this year, we expect one further cut in 2025. The BoE has cut rates twice, and we anticipate three further cuts this year in line with market expectations. Although our economic outlook has softened amid current global tensions, we still expect GDP growth to improve compared to 2024. 

Capital markets activity has gained momentum, driven by a material improvement in financing conditions. We expect further improvement in the latter half of the year, with stronger buying appetite being matched by increased asset availability, partly due to a wave of upcoming loan and equity maturities.

Investor interest is strongest in the living sector, with broader buying strategies emerging. Logistics shows an expanding gulf between prime and secondary assets, with building specification increasing in importance. Office investment continues to see strong momentum as investors return to the sector. Retail meanwhile sees a resurgence in large shopping centre deals due to attractive entry yields. 

Interesting dynamics are also emerging with regards to sector drivers and occupier markets. Living remains undersupplied, with the situation expected to worsen further as investors increasingly opt to buy rental assets and eventually sell them on the owner-occupied market. Resolving the imbalance will require bold government incentives. 

Logistics take-up has stabilised, and occupier decision-making remains cautious amid ongoing uncertainty. Vacancy rates continue to rise but are expected to peak later this year as construction activity slows. 

Occupiers’ focus on top quality office space has widened the gulf between CBDs and less central submarkets. Growth in office-based employment is supporting demand, with further rental increases anticipated in the remainder of the year. 

An ongoing focus on flagship store formats in the best retail locations has led to strong demand in prime high streets, though secondary space lags. Retail parks are a standout segment, and one in which we expect continued rental growth outperformance. 

The continued rise in international tourist arrivals across Europe has had a positive impact on the hotels sector. While the pace of RevPAR increases has moderated compared to 2024, it continues to grow at a healthy pace. A slowdown in new hotel openings is expected to support further upward pressure on room rates. 

A sharp imbalance between demand and supply persists in the data centres sector, with demand fuelled by hyperscalers and the AI boom. Vacancy rates, already at a record low, will continue to compress in the latter part of the year, further fuelling rental growth.

Finally, sustainability continues to increase in importance for investors, lenders and occupiers. Europe’s leadership in this area positions it well to attract sustainability-conscious capital.