Strong but gradual recovery in Europe in 2025 with offices, logistics and alternatives

On the one hand, the repricing, which can be said to have ended, but has lowered values enough to profile good deals for those who want to buy at a discount. On the other, the cost of money, which, after four ECB cuts, is again widening the cords on financing (and easing the debt burden). For European real estate operators, 2025 will be the year of the investment renaissance. But it will not be a 'flare-up'. Rather a gradual acceleration, especially in the second half of the year.

Tracking the European course will be the 'classics', offices and logistics, accompanied (a step back) by 'dedicated' residential, which in Italy rhymes with student housing. While alternative assets have reached an average of 18% of investment portfolios. Rents, in all sectors, will grow. Because in recent years - between Covid, high rates and "inflated" material costs - not enough has been built to meet the demand for "new". And this weighs on the rents of 'grade A' assets (the new and more efficient ones), which will continue to grow, but does not yet put secondary ones, which one would like to (but cannot yet) get rid of, completely out of the market. Which remain good 'bargains' for those who want to convert them, especially if they buy them today at a steep discount.

According to data from Aew, European real estate transaction volumes in 2024 and 2025 will be EUR 170 billion and EUR 200 billion respectively, up from EUR 150 billion in 2023. According to Aew, the total return on prime real estate assets (defined as the sum of income returns and capital value) is expected to average 9.2 per cent annually, for the period 2025-29. The highest performance is expected in France and Benelux (over 10%), ahead of the UK. Over the next five years, Italy is expected to outperform the European average for returns on logistics (10.2 per cent per year versus around 9 per cent in Europe), shopping centres (9.7 per cent versus 9 per cent) and residential (just above and just below 8 per cent)..

In general, explains Tom Carroll, head of Emea research at Jll, "in the first nine months, while France saw a 28% drop in investments and Germany just +5%, Italy, with 6.6 billion, posted a +90% year-on-year increase, surpassing the annual total of 2023, with year-end estimates of eight billion. In Europe, in addition to drivers, offices and logistics, alternative assets are growing: data centres, student halls of residence, managed housing and healthcare (in Italy especially the first two)".

"Even in the largest commercial real estate markets in the Eurozone," explains Cbre's Research team, "we are seeing signs of recovery. In Germany, for example, after the sharp decline in investment volumes over the last two years, the 2024 market is expected to close on an upward trend compared to last year. Here, too, the market remains highly polarised and further repricing is expected for secondary assets, while for commodities the growth in yields seems to have come to an end and the first signs of possible compression in the coming months are emerging. In France, on the other hand, 2024 volumes are expected to remain on a downward trend, mainly due to the weakness of the local office market, partly offset by good results in the living, hotel and industrial & logistics segments. The outlook for the French market in 2025 still appears uncertain, due to the current climate of political uncertainty and the critical situation regarding the public deficit.