European Outlook 2025

Key Takeaways

Economy

• Europe’s growth is set to revive in 2025, but the speed of growth will vary greatly by country.
• Monetary policy is on a downward path; yield curve normalisation will be a catalyst that drives capital markets forward. Central bank interest rate cuts and improved credit conditions are likely to stimulate capital markets, creating attractive investment opportunities and supporting the commercial real estate sector, with growth varying by sector and the need to adapt to economic, environmental, and technological shifts.
• A second Donald Trump’s U.S. Presidency throws a potential wild card into the outlook, however, it's worth noting that European property performed well during his first term.
• The contours of a stronger property sector are forming, but not without risks.

Hospitality 

• As we approach 2025, the hotel sector is shifting gears, with value drivers transitioning from income growth to capital appreciation.
• Slower growth is expected, but increased availability of debt with favourable pricing will boost investor confidence and drive yield compression as interest rates decline.
• The C&W TIME Score suggests the hotel sector is entering an expansionary phase, with investment activity accelerating and a sustained upward market trend.
• Hotel investment and values have likely bottomed out, presenting a window of opportunity for early movers heading into 2025.

Living

• The living sector faces challenges entering 2025, particularly regarding viability and supply, but signs indicate the downturn is coming to an end as trends in pricing and investment transactions show improvement.
• Demand for living space remains one of the strongest and most durable across all commercial real estate sectors in Europe, with the living sector entering the expansion phase of the real estate cycle.
• C&W TIME Score also suggests that the living sector is entering the expansion phase of the real estate cycle, with prospects for capital growth and total returns now heavily favouring investors deploying capital. Taken together, these factors point to a much-improved outlook for European living markets in the year ahead.

Logistics

• Rental growth is forecast to continue in 2025 at a more modest pace, with growth being more market-specific, particularly strong in the UK, Slovakia, and Ireland, while countries like the Czech Republic and the Netherlands may see slower or stable rent levels. Properties with strong sustainability features and prime locations are expected to outperform.
• Investment activity in the European logistics and industrial market has remained stable in 2024, with a lack of available assets constraining transaction volumes, but narrowing price expectations and lower interest rates are increasing market activity and drawing core investors back.
• Prime logistics asset pricing has reached a new equilibrium, with prime yields stabilising across most of Europe, and 37 out of 39 European markets considered underpriced according to C&W Fair value index, indicating potential for future value appreciation.

Office 

• Asset repositioning and repurposing are expected to increase as property owners upgrade older assets to stay competitive, particularly in major cities like London and Paris, while office space in peripheral areas may face declining demand, with repurposing emerging as a viable solution for obsolete buildings.
• These trends will continue to exert upward pressure on rental growth as we look to the near term, albeit we expect the pace of growth to soften into 2025 and 2026, dropping back to around 2% and 1.6% respectively at the European level.
• Yields are expected to peak this year with gradual reduction over the next couple of years reflecting growing demand and transaction activity, combined with further reductions in finance rates.

Retail 

• Retail market fundamentals are expected to strengthen further in 2025, driving increased investment.
• As consumer dynamics improve—spurring foot traffic, higher spending, and better occupancy rates—investment volumes are set to rise.
• Prime yields are likely to compress modestly across retail asset classes by the end of the year. However, this positive momentum will primarily benefit high-quality assets such as retail parks, top-tier shopping centres, and prime high streets. Meanwhile, properties in secondary or less desirable locations are expected to face ongoing challenges, both in terms of market fundamentals and investor interest.