Total annual investment in commercial real estate across EMEA reached €187 billion (US$202 billion) in 2024 - a near 11 per cent increase on 2023 - amid rising signs of positivity. Despite some investors remaining cautious, citing concerns over high interest rates, inflation, and political instability, many indicators now point to favourable conditions for investing in European real estate, as per Savills report.
While the global geopolitical climate remains uncertain, the concerns about inflation and interest rates are largely based on misconceptions. Inflation is steadily moving towards target levels, and interest rates are downward. The European Central Bank (ECB) has already lowered rates by 100 basis points for 2024, with expectations for further reductions in 2025, potentially bringing the policy rate to between 1.75 per cent and 2 per cent by 2026. The Bank of England, despite ongoing inflation pressures, also reduced rates in February, signalling positive movement in the financial environment.
On the political front, Europe has seen significant stabilisation. The French Government successfully passed its 2025 budget after surviving a no-confidence vote. Germany’s recent election resulted in a historic deal to relax fiscal rules, offering growth potential for an economy needing a boost.
While Europe’s economic growth in 2025 is expected to be slower than initially forecast, with the IMF predicting growth of 1.0 per cent, there are positive signs for the real estate market. A recovery in household incomes and improved financial conditions should support domestic demand, including for real estate. Although trade tariffs present some risks, the region’s limited exposure to US trade reduces the impact.
Overall, macroeconomic conditions are relatively stable, and commercial real estate prices are now more aligned between buyers and sellers following a period of uncertainty. In some markets, the lack of available stock is hindering recovery rather than a lack of buyers. However, liquidity is increasing, with larger transactions becoming more frequent as institutional investors, including returning US private equity buyers, increase their market share.
The recovery in real estate activity is closely linked to interest rate changes, with the decline in rates driving a resurgence in investor confidence. This trend is particularly evident in continental Europe, where prime assets are now attracting investment with accretive debt. As interest rates continue to ease, 2025 will offer significant opportunities for real estate investors.
