Knight Frank’s 2025 European Real Estate Outlook predicts a cautious but optimistic recovery for the region’s property market.
The report suggests that stabilising valuations and lower interest rates will fuel an improvement in investment conditions.
Knight Frank’s pan-European study anticipates that, although further European Central Bank monetary easing is expected, its speed will depend on inflation and wider sociopolitical factors. Southern European and Nordic economies are forecast to drive growth, with Spain particularly strong due to its solid economic base.
Judith Fischer, partner, Commercial Research at Knight Frank, commented: ‘As we move into 2025, Europe’s real estate market is displaying resilience, with encouraging trends in key sectors such as logistics and living. The stabilization of prime yields in many markets, combined with more favorable conditions for cross-border capital, positions Europe as a leading destination for global investment. However, regional variations and sector-specific opportunities will require nuanced strategies.’
Mike Bowden, managing director & co-head of Capital Markets, Europe at Knight Frank, added: ‘Stabilizing valuations and a potential shift in monetary policy are setting the stage for a recovery and bringing forth cautious optimism from investors. However, navigating this environment requires a disciplined, forward-looking approach, with an emphasis on identifying opportunities aligned with long-term structural trends.’
Strong demand is expected in logistics, residential, and hospitality sectors due to underlying market strengths. Prime logistics yields are stabilising, and some cities (like Madrid and Amsterdam) are already seeing yield compression.
Europe continues to attract global investors, according to Knight Frank, further boosted by favourable currency exchange rates and hedging opportunities. Domestic investors are prioritising prime, ESG-compliant offices due to limited availability.
The retail sector is experiencing renewed investor interest after significant price adjustments. The hospitality sector remains attractive due to increasing tourism. Furthermore, the data center market is booming, driven by growing demand for digital infrastructure, particularly with the expansion of AI.
Market prospects
Despite economic headwinds, Germany remains a leading investment destination, the research finds. France is seeing increased interest in retail and alternative assets. Strong demand across various sectors is driving investment in Spain and Italy, fuelled by economic growth and long-term market trends.
In Germany, looser monetary policy should encourage investment, particularly in sustainable office spaces, leading to higher prime rents.
France’s real estate market is experiencing a resurgence, with retail and logistics sectors showing strong growth potential thanks to rising consumer spending.
Real estate transaction volumes in Italy are forecast to reach their highest levels in a decade, driven by ongoing demand for logistics, residential, and hotel properties.
Spain’s strong economy is fueling real estate growth, with prime rental rates expected to increase in sectors like offices and logistics due to high demand.
Judith Fischer concluded: ‘Europe’s real estate landscape is entering 2025 with optimism. As stabilizing interest rates and resilient sectors pave the way for recovery, investors are well-positioned to capitalize on the opportunities emerging across the continent.’
