Europe CRE 360 - September 25

Fiscal boost supports recovery

• An increase in defense spending across Europe and looser fiscal policy in Germany will support economic growth.
• However, higher US import tariffs and global uncertainty will prevent much of a rebound.
• Inflation has stabilised around the ECB’s 2% target. Meanwhile, the ECB’s interest rate cutting cycle is coming to an end.
• Overall, we forecast eurozone GDP to grow by 1.2% y/y in 2025 and 1.3% y/y in 2026.

Capital market continued to rebound

• Total investment for Q2 2025 amounted to €164bn showing a consistent 20% year-on-year increase. The increase is driven by all asset classes. 
• Following a sustained improvement over 2024, the first half of this year continued to see expansion.
• Persisting uncertainty around macroeconomic and financial background is likely to moderate the investment activity, nevertheless, the cutting cycle of the monetary policy have remained so far supportive. 

Office Lettings remain encouraging

• Around 3.99 m sqm was transacted over H1 in the 18 main European markets, reflecting a 6% increase (vs H1 2024). 
• Recent relocations indicate that some occupiers are increasing the size of their office requirements, accentuated by the rise of returns to office mandates.
• Despite a slowdown in deliveries, the average European vacancy is increasing.

Selective improvement in the logistics market

• A slow start to the year for the occupier market with contrasting trends between the leading European markets. Apart from Spain and Germany, demand has been lagging in most countries.
• Capital markets recorded good growth of 7% boosted by the return of portfolio transactions. Yield decompression has closed with stabilisation nearly everywhere in Europe, creating a more predictable environment than seen in previous years

Retail:  recovery is in the making

• Retail recorded an increase of 30% in investment volume over the past 12 months. Investors show most confidence in the big markets, as Germany and the UK captured almost half of transaction volume.
• Retail sales in Europe rebounded in June (+0,3%) despite economic uncertainties, price volatility and growing tensions on American exports. As exports should be negatively impacted by tariffs and a stronger euro, domestic demand is becoming key to support growth.

Residential: smaller scale deals drive activity

• Residential investment volume in Europe reached €18.3bn (-1% y/y) in H1 2025. Fewer very large-scale deals occurred in Q2 2025 where investment volumes decreased by 20% y/y.
• House prices and rental values increased by 5.5% and 3.7% y/y, respectively in Q1 2025. Despite the ongoing regulations in Europe, rental values are still booming in several cities to reach new record levels.