A new PwC and Urban Land Institute (ULI) report suggests a cautiously optimistic outlook for European real estate, with London, Madrid and Paris leading the way despite geopolitical and economic concerns.
Despite higher inflation, interest rates and geopolitical uncertainties, more than 80% of respondents polled for the report expect business confidence and profits to remain stable or improve in 2025.
The Emerging Trends in Real Estate Europe 2025 report suggests a “new normal is emerging” in the European real estate market. As valuations have stabilised and interest rates become more predictable, market players are cautiously optimistic.
Despite the overall optimism, concerns about economic growth and geopolitical uncertainty persist, indicated by 85% of respondents identifying political instability as a major source of volatility, up from 74% the previous year. Also, 83% of the respondents highlighted conflicts in Europe and the Middle East as a significant concern.
According to the report, there is recognition that “European real estate sentiment is, in large part, still influenced by interest rate policies in the US and at home and shifting political order in Asia”.
“Adopting a three-to-five-year view, some leaders believe that recovery could take longer than experts have previously predicted,” the report said, adding that European and global economic growth are among the chief business concerns for 2025, with 77% and 62% respectively either “very” or “somewhat concerned” about these factors.
Lisette van Doorn, CEO of ULI Europe, said: “This year’s report holds a mirror to an industry that, despite its much-needed optimism following the last three years, still faces a complex and volatile environment where fragile growth prospects and geopolitical turbulence are expected to continue to affect business confidence and whether players will be able to unlock the opportunities appearing.”
Gareth Lewis, director at PwC, said: “In a new normal of higher interest rates, the buzzword is ‘operational’ real estate as a route to creating value. This puts a lot of the burden of achieving growth assumptions onto the shoulders of occupiers and their ability to sustain those rent increases underpinning investment models.
“This may explain the elevated concerns we’ve seen in this year’s research around economic growth, European competitiveness and changing occupier demand.”
The survey also highlights that ESG remains one of the most significant challenges for real estate both in the short and long term, with more than 70% of respondents concerned about environmental issues in 2025, and 72% flagging this as an issue for the next five years.
Many admitted they are struggling to keep competing environmental concerns top of the agenda, and the survey interviews also reveal a degree of industry push-back over ESG, the report said.
Other trending topics include artificial intelligence (AI), with nearly half of survey respondents or their companies having used AI in the past year. The vast majority expect AI and machine learning to have an impact on all areas of real estate over the next five years.
However, digital risks also constitute a major industry concern, with 59% of respondents naming cybersecurity as a top business concern, ranking fourth overall, with digital transformation (42%) and AI (35%) also among the top industry concerns.
Over a five-year period, this risk rises as a priority among 63%, becoming the second most important business issue, the report stated.
Among the sectors to watch, data centres ranked first in the overall investment and development prospects for European real estate, followed by new energy infrastructure, student housing and logistics.
Finally, while physical climate risk and real estate’s transition to net-zero carbon emissions have been recurring issues previously, this year’s report also examines the far-reaching implications for real estate insurance and finance from these twin challenges, the report said.
Jean-Baptiste Deschryver, PwC EMEA real estate leader, said: “While geopolitical and economic uncertainties continue to dominate discussions, it’s encouraging to see a sense of cautious optimism returning to the European real estate market.
“Within this, however, the industry must grapple with significant challenges, from ongoing instability and regulatory burdens to ESG demands and the rise of digital risks. Success will belong to those who can adapt, innovate and embrace new technologies and sustainable practices.”
The 22nd edition of the Emerging Trends in Real Estate Europe report surveyed 1,143 property professionals, including investors, fund managers, developers, property companies, lenders, brokers and consultants.
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