The outlook for the European business property market is cautiously optimistic regardless of rising geopolitical uncertainty and issues about financial progress, with London, Madrid and Paris rising because the standout performers, in response to a brand new report by PwC and the City Land Institute (ULI). The report – Rising Developments in Actual Property Europe 2025 outlines how market gamers imagine ‘a brand new regular’ is rising as valuations have come down and rates of interest regain some degree of predictability in a market characterised by larger inflation and rates of interest, and geopolitical and financial uncertainties. This led to greater than 80 p.c of survey respondents anticipating enterprise confidence and income to remain the identical or rise in 2025, with round half predicting will increase in each.
Nevertheless, there are robust caveats to this general optimism, and sentiment stays clouded among the many 1,143 respondents. Along with issues about financial progress, there are fears of rising geopolitical uncertainty, with 85 p.c citing political instability (up from 74 p.c the 12 months earlier than) and 83 p.c the conflicts in Europe and the Center East as sources of appreciable volatility.
There may be recognition that European actual property sentiment is, largely, nonetheless influenced by rate of interest insurance policies within the US and at dwelling and shifting political order in Asia. Adopting a three-to-five-year view, some leaders imagine that restoration might take longer than specialists have beforehand predicted. European and international financial progress are among the many chief enterprise issues for 2025, with 77 p.c and 62 p.c respectively both “very” or “considerably involved” about these components.
In tandem with an unsure geopolitical and financial panorama, actual property enterprise points that proceed to stifle growth embrace the influence of elevated regulation, which at 74 p.c p.c now ranks as the highest actual property enterprise concern in EMEA, and development prices and useful resource availability the quantity two concern, at 70 p.c.
The report additionally means that lowered tenant demand stays a difficulty for 44 p.c of survey respondents, though that has fallen from 48 p.c final 12 months, and 42 p.c of respondents are nonetheless anticipating challenges to the occupier markets, even after a three-to-five-year window of restoration.
This 12 months’s survey highlights that ESG stays some of the vital challenges for actual property each within the quick and long-term, with greater than 70 p.c of respondents involved about environmental points in 2025, and 72 p.c flagging this as a difficulty for the following 5 years. Many admitted they’re struggling to maintain competing environmental issues high of the agenda, and the survey interviews additionally reveal a diploma of trade ‘push again’ over ESG.
Different trending subjects embrace synthetic intelligence (AI), with almost half of survey respondents or their firms having used AI previously 12 months. The overwhelming majority count on AI and machine studying to have an effect on all areas of actual property over the following 5 years.
Nevertheless, digital dangers additionally represent a significant trade concern, with 59 p.c of respondents naming cybersecurity as a high enterprise concern, rating fourth general, with digital transformation (42 p.c) and AI (35 p.c) additionally among the many high trade issues. Over a five-year interval, this danger rises as a precedence amongst 63 p.c, changing into the second most essential enterprise difficulty.
The supply of capital stays vital in an actual property market the place investor curiosity is subdued following international uncertainty, the fact of a brand new “financial regular” and the evolving wants of actual property occupiers. Regardless of worth falls in actual property, many institutional traders proceed to take care of denominator impact points round slower revaluation of actual property which can forestall additional funding alternatives. There may be additionally a way amongst respondents that actual property funding usually nonetheless should show its value subsequent to different safer asset courses similar to long-term bonds.
Among the many sectors to look at, knowledge centres ranked first within the general funding and growth prospects for European actual property, adopted by new power infrastructure, scholar housing and logistics. This displays traders persevering with to give attention to main traits together with demographics, digitalization and decarbonisation, and a actual property trade seeking to chart new horizons. Nevertheless, lack of appropriate inventory continues to be a difficulty for a lot of sectors together with in logistics, storage and varied types of housing, and a few are involved that costs are inflated by over-optimistic progress assumptions. Lastly, the outlook for workplace and retail funding stays subdued following persevering with warning in regards to the influence of structural change.
London and Paris proceed to dominate European actual property funding, rating first and third respectively for general prospects for 2025. London retains the highest place for a fourth consecutive 12 months, and regardless of slipping to 3rd place, Paris stays a powerful market boosted by Olympic-driven funding and main infrastructure tasks being deliberate. Within the first 9 months of 2024, these two cities mixed accounted for 11 p.c of complete European transaction values, or round €14 billion of funding, in response to knowledge from MSCI. Madrid’s rise to second place highlights the enchantment of robust macroeconomic components and high quality of life.
Elsewhere within the high ten, the German cities of Munich (5), Frankfurt (8) and Hamburg (9) have all risen within the rankings, with Berlin (4) sustaining its place. Moreover, Lisbon (10) has dropped two locations, although Milan (7) and Amsterdam (6) have each secured robust positions.
Lastly, whereas bodily local weather danger and actual property’s transition to net-zero carbon emissions have confirmed recurring points beforehand, this 12 months’s report additionally examines the far-reaching implications for actual property insurance coverage and finance from these twin challenges.
As actual property faces elevated dangers from the rising frequency and severity of maximum climate occasions alongside the transition to internet zero, the influence on the trade is changing into clearer by way of monetary prices and enterprise interruption, and almost two-thirds of respondents count on a rise in insurance coverage prices over the following 5 years. Whereas the problems across the insurance coverage and financing of actual property from local weather dangers are extensively acknowledged, the report discovered that present ranges of trade consciousness and collaboration don’t replicate the size and urgency of the problem.