Investment houses are predicting that the European real estate industry will ‘thrive in 2025’ as macroeconomic markers and wider market sentiment improve.
Christopher Mertlitz, managing director, head of European investments at WP Carey, suggests that the ‘wait and see’ sentiment that characterised capital markets in 2024 may be turning a corner. ‘2024 was undoubtedly a challenging year for many real estate investors,’ he says.
‘However, as we head into 2025, there is a renewed sense of optimism. Inflation across key markets including the US, UK and eurozone has largely cooled, and central banks have responded accordingly, embarking on a cutting cycle to reduce rates. Prices seemed to have bottomed out too, and buyers and sellers have been increasingly in step with each other. We expect that this will lead to transaction volumes gradually rebounding over the course of the next year.’
One possible fly in the ointment, notes Mertlitz, could be the ongoing bid-ask spread affecting transactions. ‘There is a threat that sellers’ pricing expectations may get carried away by headline interest rate reductions. As such, this may lead to a widening of the bid-ask spread and therefore make it more difficult for buyers and sellers to transact and agree on pricing,’ he says.
‘Rather, market participants should consider a more important factor – long-term borrowing costs. This is because real estate investors typically borrow against a long-term basis given the length of their leases and as a result, short-term rate cuts will not have as much of an impact as some are anticipating,’ Mertlitz adds.
European views
The WP Carey market outlook highlights opportunities in European sale-leasebacks in the coming year. Says Mertlitz: ‘Sale-leasebacks enable corporates to unlock the value of their otherwise illiquid real estate assets and use this capital to finance an array of key business objectives, including reducing debt, funding R&D or even carrying out strategic acquisitions.
‘Coupled with a sluggish European economy that is forecasted to grow relatively slowly, we expect sale-leasebacks to continue serving as a valuable tool for companies as they work to finance ongoing operations and their growth initiatives.’
In terms of asset classes, ‘industrial and retail’ are two to watch, he suggests. ‘We also see growth in sectors such as self-storage and data centres, both of which have caught the eyes of investors over the course of 2024.’
UK opportunities
Finance boutique Ask Partners advises investors to study opportunities in the UK in the coming year. Daniel Austin, the firm’s CEO and co-founder, says: ‘The UK real estate market in 2025 offers diverse investment prospects across five key sectors: build-to-rent (BTR), co-living, hotels, student housing, and offices.’
Austin says that BTR developments continue to thrive in urban hubs like London and Manchester, driven by rising rental demand despite affordability and regulatory challenges. He adds: ‘Co-living spaces cater to shifting demographics and affordability concerns, blending shared and private living while aligning with sustainability goals. The hotel sector shows strong recovery post-pandemic, with £6 bn (€7.2 bn) in projected transactions and innovative concepts like hybrid hospitality hubs.’
For Ask Partners, student housing remains resilient, buoyed by international demand and double-digit rental growth in university cities such as Oxford and Bristol. Austin concludes: ‘Offices have adapted to hybrid work models, with demand for sustainable, flexible spaces driving growth in prime assets. While challenges like inflation, rising costs, and stricter regulations persist, strategic, innovative approaches can help investors capitalise on these evolving opportunities for robust returns.’
Looking at the prime residential market in the UK, residential relocation specialists, R3Location, suggests that London will benefit from plenty of interest. The firm’s co-founder & head of research, Marco Previero explains: ‘The weakening of the pound, from its five-year high in May 2021, coupled with London’s enduring reputation as a global financial hub, makes London properties an increasingly attractive investment for foreign buyers.
‘We are particularly curious to see if the influx of American buyers will continue to grow, especially as many, including high-profile celebrities, have relocated due to political uncertainties and London’s constant cultural appeal.’
