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Europe Real Estate Sector Report

Spring 2025

April 17, 2025 | 20 min read
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Key:

Improving
Neutral
Deteriorating
Positive
Moderately positive
Neutral
Moderately negative
Negative

Sector conditions and outlook1

Office

Office capital value growth turned positive in Q4 2024 for the first time after nine consecutive negative quarters. However, the sentiment towards offices remains weak. Although transaction volume increased by 34% in Q4 2024 compared to the year prior, the office share of total commercial real estate volume remained at an all-time low. Occupier demand continues to be polarised by sub-market and asset quality. Overall, vacancy rates rose further in the quarter to 9.5%, while improving in core business districts with limited supply and high employer competition.

Current conditions:
Green circle Red circle
Outlook:
Industrial/Logistics

Industrial is one of the property types leading the real estate transition from correction to recovery. Market values increased for the third consecutive quarter, and market liquidity, defined as deal volume, improved to a level in line with the ten-year average, driven by Spain, amid a favourable supply-demand imbalance, increasing e-commerce penetration, and a relatively positive outlook. More broadly, occupier demand is normalising between the COVID-19 pandemic highs and the lows touched during the energy crisis and monetary tightening period. However, the outlook is clouded by heightened geopolitical tension and trade war risks, but partially offset by increased EU defence spending.

Current conditions:
Outlook:
Residential

Residential capital values continued to recover for the third consecutive quarter. All metro markets in Europe contributed to the rise, except for the UK cities of Leeds, Edinburgh, and London. The Netherlands was the best-performing market due to a severe shortage of building land, grid congestion, and complex project development legislation. Meanwhile, in Germany, residential properties are showing signs of a turnaround, although older stock continues to face pressure. Overall, residential ranks highly among investor preferences.

Current conditions:
Outlook:
Hotel

Hotel sector performance continued to strengthen amid a continued surge in tourism, rising business travel demand, above-inflation operating performance, and a positive outlook. Indeed, the hotel sector’s share of total European transaction volume reached a record annual high of 12% in 2024. Investors’ demand was particularly strong for assets located in the UK, France, Spain and Italy. Revenue per available room (RevPAR) increased at double-digit rates across all segments in 2024, while occupancy has now pared the post-pandemic losses in most countries. Barring any unexpected economic shocks, we anticipate revenue growth in 2025 to be steady, albeit more moderate than in previous periods.

Current conditions:
Outlook:
Retail

Retail capital flow increased by roughly 40% in Q4 2024, driven by Italy and Spain. The structural headwinds that have impacted the sectors in previous years have driven consolidation, reduced new developments, and resulted in a smaller pool of highquality, resilient assets that investors now feel comfortable acquiring, particularly in Southern Europe. Capital growth was positive for the second consecutive quarter in Q4 2024, driven by retail warehousing and shopping centres. Meanwhile, European consumer spending remained flat in Q1 2025, though underlying sentiment reflects continued caution.

Current conditions:
Outlook:
Data centres

Data centres continue to rank among the most attractive property types, owing to supply-demand imbalance and a bright outlook. Take-up for colocation space reached a new record high for the seventh straight year, driven by the expansion of cloud infrastructure and AI capacity. In the tier one markets, the demand-supply imbalance continued to widen, pushing the vacancy rate to new lows, down to 8% as of December 2024. CBRE expects demand to outpace supply growth in 2025, thereby exerting further downward pressure on vacancy rates across Europe and accelerating the expansion of secondary markets such as Berlin and Milan. In our view, cloud data centres are more resilient to downside risks than assets developed solely for generative AI model training.

Current conditions:
Outlook:
Healthcare

Healthcare transaction volume remains below the sector’s ten-year average following a prolonged period characterised by rising costs and uncertainty. However, the last quarter of 2024 marked a significant improvement in deal activity amid a more favourable trading environment. Operators’ margins have begun to adjust, and occupancy rates show an increasing trend. Values started to pare some of the losses that occurred since June 2022, although they remain 7% below the last peak.

Current conditions:
yellow circle
Outlook:
Student housing

Student housing investment volume reached €6.1bn in 2024, slightly above the previous year, but still below its long-term average. Deal activity in the UK was subdued, due to tighter visa rules and a decline in international student applications, particularly at second-tier universities. Conversely, there has been a notable increase in investment targeting Southern Europe, particularly Spain, which recorded its second-best year on record.

Current conditions:
Outlook:

1 Outlook refers to the next 12 months

For our detailed perspective on the conditions and outlook for each sector, please download the full Europe Real estate sector report.

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Disclosure

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Risk considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All  financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.

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MM12006-06 | 04/2025 | 4376144-042026