Despite a turbulent global landscape, the European real estate market is experiencing a cautious resurgence in positive sentiment, according to the 2025 Emerging Trends in Real Estate Europe report from PwC and the Urban Land Institute (ULI).
While geopolitical uncertainty and economic headwinds remain, London, Madrid, and Paris are emerging as strong performers.
The report highlights a ‘new normal’ where valuations have adjusted and interest rates are becoming more predictable, against a backdrop of higher inflation, interest rates, and ongoing global instability.
Over 80% of survey respondents expect their profits and confidence to remain stable or increase by 2025. However, concerns persist over the impact of political instability, global conflicts, and US interest rate policies on European real estate.
While the market is showing signs of recovery, some industry leaders believe a full rebound could take longer than initially anticipated. They emphasize the importance of taking a long-term perspective (of 3-5 years) to navigate these complex challenges.
Key concerns for 2025 include economic growth in Europe and globally (77% and 62% of respondents are "very" or "somewhat concerned"); political instability (85%), and conflicts in Europe and the Middle East (83%).
Increased regulation is the top business concern in the EMEA region (74%), followed by rising construction costs and resource scarcity (70%). While slightly improved from last year, reduced tenant demand remains a concern for 44% of respondents, with challenges to the occupier market expected to persist for at least 3-5 years. Over 70% of respondents are concerned about ESG issues in 2025, and 72% anticipate challenges over the next five years.
AI is rapidly gaining traction, with nearly half of respondents using it within the past year. AI and machine learning are expected to transform all aspects of real estate within the next five years. Cybersecurity is the fourth top business concern (59%), and this concern grows to become the second most important issue within a five-year timeframe. Digital transformation (42%) and AI (35%) are also significant concerns.
Investor interest remains subdued, impacted by global uncertainty, the emergence of a new economic reality, and evolving occupier needs. The report notes a ‘denominator effect’ impacting institutional investors, hindering further investment opportunities due to slower revaluation of real estate. Real estate investment is facing competition from more secure asset classes, like long-term bonds.
Top performing sectors include data centres, ranked first in the overall investment and development prospects for European real estate, followed by new energy infrastructure, student housing and logistics. However, a lack of suitable stock is a persistent issue across various sectors, including logistics, storage, and housing, potentially limiting growth. Concerns also exist regarding inflated prices, while the outlook for office and retail investment remains muted, reflecting continued caution about the long-term impact of structural changes in these sectors.
London, Madrid, and Paris are ranked as the top three cities for real estate investment and development potential German cities continue to be strong performers, with Munich (5th), Frankfurt (8th), and Hamburg (9th) all climbing the ranks. Berlin remains a top contender, holding onto its 4th place position. Lisbon (10th) saw a slight drop, but Milan (7th) and Amsterdam (6th) have maintained strong positions.
