European commercial real estate market stabilizing

Despite economic and political uncertainties, the European commercial real estate market is stabilizing and regaining investor confidence, according to Cushman & Wakefield's Midpoint 2025 report. 

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Transaction volumes are up by 7.4%, led by Germany and the UK, and continued improvement is anticipated as the worst of the trade disruption has passed and due to a more growth-oriented government spending approach. Across sectors, prime assets in central locations are performing well.
Transaction volumes are up by 7.4%, led by Germany and the UK, and C&W anticipates continued improvement as the worst of the trade disruption has passed and thanks to a more growth-oriented government spending approach. Across sectors, prime assets in central locations are performing well. 
Office leasing experienced a slowdown at the beginning of 2025 due to global uncertainties. However, the demand for premium office spaces in CBDs remains robust, representing 70% of leasing transactions in the past year, a significant increase from the pre-pandemic 60%. Leasing activity in 2025 is projected to be similar to 2024, with a positive net absorption of 1.3 million m2. C&W predicts that as global political risks subside and trade agreements advance, increased corporate confidence will boost activity further into 2026.
In contrast, vacancy rates continue to climb in non-central areas, while rental rates in central areas are still facing upward pressure due to the high demand for top-tier, well-situated spaces. Office space completions across Europe are projected to increase by 23% year-over-year in 2025, with London and Milan contributing the most to this new supply. Prime office rents are expected to rise by 2.7% in Europe (excluding the UK) and 6.8% in the UK in 2025, while yields are anticipated to decrease by 9 basis points.
The logistics sector experienced a slow beginning to the year, but leasing activity is now stabilizing close to pre-pandemic levels. Factors such as easing monetary policy, steady demand and constrained supply are projected to fuel a recovery extending into 2026. Prime logistics rents are predicted to increase by 2.6% in Europe (excluding the UK) and 5.1% in the UK in 2025. A compression of yields by 17 basis points is anticipated for logistics assets this year due to strong investor interest and limited availability. Investment volumes rebounded in Q1 2025 (€46 bn) and are expected to continue growing as pricing adapts to the current interest rate environment and seller expectations align with market conditions.
The retail sector remains robust, even with planning difficulties related to tariffs, and this positive trend is expected to persist throughout 2025. Prime retail rents are projected to grow by 2.4% in Europe (excluding the UK) and 4.9% in the UK in 2025. Investor confidence is improving, and debt financing is becoming more accessible, leading to renewed interest in retail properties, especially those in high-traffic urban areas and retail parks. Capital values are anticipated to increase by 3.3% in Europe and 4.9% in the UK, resulting in total returns of 8% and 10.8%, respectively.
The residential sector continues to be supported by a fundamental imbalance between the supply of housing and demand, a situation that is unlikely to improve soon. This is leading to consistent upward pressure on rental prices (+ 6.4% year-on-year in Q1 2025), especially in urban areas where housing is scarce. Consequently, the potential for rental growth remains strong in the medium term, making it an attractive option for institutional investors. C&W expects that 80% of investors intend to allocate more capital to the living sector in the next five years.
Hotel transaction activity in Q1 2025 surpassed the average for the period 2020-2024 by 24%, even though it saw a 4% decrease compared to the exceptionally strong first quarter of 2024. Hotel investment is becoming more widespread geographically, with increasing interest in CEE as well as Southern Europe. A robust pipeline of marketed hotel portfolios suggests a strong H2 2025, with investment volumes expected to exceed those of 2024, boosted by improved financing options and stable interest rates.
Sukhdeep Dhillon, head of EMEA Forecasting at Cushman & Wakefield, said: “The European commercial real estate market is transitioning from caution to conviction. While forward-looking indicators remain mixed, the fundamentals across sectors, particularly in logistics, living, and prime retail are robust. As inflation moderates and rate cuts take hold, we expect capital markets to respond positively, unlocking new opportunities for investors in the second half of 2025 and into 2026.”