Europe CRE 360 - February 25

Gradual economic recovery

• European economies lost significant momentum towards the end of 2024.
• Uncertainty around trade with the US will pose a challenge this year.
• However, falling interest rates should support modest economic growth.
• We expect eurozone GDP to grow by 0.9% y/y in 2025 and 1.0% y/y in 2026.
   

Robust rebound for capital markets

• €157bn were invested in Europe in 2024, rising by +21% compared to 2023. The increase is driven by all asset classes. 
• It is now evident that the trough was reached at the end of 2023 and 2024 marks a dynamic and anticipated recovery. 
• More stability is emerging in the macroeconomic and financial backdrop as central banks move into the next phase of policy.
   

Office letting: Take-up is stabilising

• 7.96 m sqm has been transacted in 2024 in the 18 main European markets, in line with the 2023 results. 
• The overall result remains below the long-term average (-15%) reflecting the ongoing structural changes in the office market where occupier activity focuses on smaller but more efficient premises. 
• Sluggish economic growth and cooling job markets in the major European countries may continue to weigh on demand in the short term.  
   

Logistics investment  is bouncing back up

• Investment activity finds its way back to growth, +23% in 2024. Yield decompression has closed with stabilisation recorded almost everywhere in Europe.
• The occupier market decreased by 9% in the leading European markets compared to 2023. Apart from Spain, demand has been lagging in most countries. The lack of new developments remains supportive of rental growth in prime sectors although weaker demand offsets its momentum.
   

Retail:  promising prospects for occupier market

• Retail recorded a significant rebound of 24% in investment volume over the past 12 months. Investors show most confidence in the core markets, as Germany and the UK captured half of transaction volume.
• The occupier market proved resilient, notably thanks to the continuing strong flow of tourists which is returning to pre-pandemics levels. Furthermore, the slowdown of inflation rate will impact positively real wages and consumer confidence, thus boosting domestic consumption across Europe. 
   

Residential: heterogeneous momentum

• Residential investment is recovering and reached to €32.8bn (+1.6% y/y) in 2024.
• House prices in Europe are expanding again +2.7% y/y across European cities but momentum is heterogeneous across Europe. At the same time, rental values are still booming, +4.2% y/y in Q3 2024 owing to the supply shortage and the ongoing regulations in Europe.