European real estate investments stable, regional dynamics vary

European commercial real estate investment stabilized in the first quarter of 2025 after a 2024 rebound, reaching €36.6 bn (€165 bn over the past year).

Virginie Wallut - director of Real Estate Research and Sustainable Investment, La Française Real Estate Managers.

Despite ECB rate cuts, tension factors preventing a significant drop in long-term rates continue to hinder market recovery. While the ECB's actions make real estate more attractive, investor caution persists, according to Virginie Wallut, director of Real Estate Research and Sustainable Investment, La Française Real Estate Managers.
European investors are playing a larger role in the market, now responsible for up to 40% of invested capital, while North American investment is decreasing due to ongoing geopolitical concerns. 
This first quarter of 2025 also showed uneven investment activity across different European regions. France saw a 41% year-over-year increase in commercial real estate investment, while Germany and the UK experienced declines of 7% and 31%, respectively.
Following a period of price adjustments, both the retail and office sectors experienced notable investment growth, rising 17% and 25% respectively in the first quarter.
Prime office yields in Europe saw a modest decrease in Q1 2025, indicating renewed investor interest after a period of price correction and better financing options. As of March 2025, prime yields ranged from 4% to 5% in major European capitals (e.g., Paris 4.2%, London 4%, Amsterdam 5%) and 5.5% to 6.5% in key regional cities (e.g., Lille 5.85%, Lyon 5.5%).
Investors are focusing on prime, well-located properties that meet modern technical and environmental standards. Consequently, less desirable, secondary assets are facing lower demand and higher yields.
While European office take-up is showing slight improvement, companies remain cautious and market recovery is uneven. Berlin experienced a significant 25% drop, while Frankfurt and Dublin saw take-up more than double. Demand is concentrated on modern spaces, pushing investors to renovate older properties to remain competitive. Prime rents continued to increase, but at a slower pace than in 2024, driven by this demand for quality. Vacancy rates continue to rise across most of Europe due to new developments completed since the start of the economic downturn, slower demand, and companies downsizing their office spaces. Only Hamburg, The Hague, and Madrid saw vacancy rates decrease.