New LaSalle research declares a turning point in the European real estate market, signalling a new era of growth.
Their European ISA 2025 report highlights a resurgence in rental growth exceeding inflation, a shift away from a solely residential and logistics focus, and a decoupling of rent increases from GDP growth since the pandemic.
Despite weak GDP forecasts and potential US tariffs, new commercial lease rents in LaSalle's European portfolio are up 2.7% in 2024, and Europe is spearheading the office market's adaptation to hybrid work models, particularly in key city centers, such as London City, the Paris CBD and Amsterdam.
Dan Mahoney, head of European Research and Strategy at LaSalle, said: ‘We are seeing a new cycle dawning for Europe’s real estate markets. Today’s Europe ISA Outlook delves into why we believe we are entering a new cycle, evidence of data thresholds crossed, and our strategy for the years ahead. These go beyond simple ‘beds and sheds’ – which is too simplistic to capture the complexity of European real estate today.’
Brian Klinksiek, global head of Research and Strategy at LaSalle, added: ‘Global real estate sentiment is gradually improving following a long period of negativity and signs are pointing to the beginning of a new real estate cycle. History has shown that investing early in a cycle tends to lead to relatively strong performance. There are, however, still risks on the horizon, and investors are advised to focus on diversified strategies that are flexible and broad enough to adapt to a complex and evolving relative value landscape. A comprehensive look at value across a wide range of sectors and markets will be required to build a well-positioned real estate portfolio.’
The European ISA Outlook 2025 highlights the importance of real estate debt strategies as a safeguard against market volatility. New performance data showcases the advantages of this approach, with investors leveraging both fixed and floating-rate lending opportunities for increased diversification.
LaSalle's Paths of Distribution Score uses a hexagonal grid map of Europe to identify optimal logistics locations. Their analysis prioritizes high-scoring hexagons within top-performing markets (France, Netherlands, and Germany) for maximizing consumer reach and minimizing distribution costs.
After a significant downturn, certain European retail sectors are now highly attractive investments. Outlet centers in the UK and Northern Europe, along with retail parks in Spain and France, and convenience centers in the Netherlands, are showing strong tenant-operator alignment and high-income potential.
Europe is at the forefront of the office market's shift to hybrid work, driven by its predominantly mixed-use, mid-rise buildings. This adaptation is currently underway, as seen in rising return-to-office rates and improving market fundamentals. London, for example, has seen five consecutive quarters of declining office vacancy, leading to increased prime rents.
The European residential market is diverse, encompassing many sub-sectors with varying financial characteristics, regulations, and target renters. While investment opportunities exist, careful sector selection is crucial; PBSA in Spain and Germany is particularly noteworthy.
