The Chief Economist: European Economic and CRE Outlook - 1Q 2025
The European economy continued its recovery in 2024, supported by easing inflation and interest rate cuts by the European Central Bank (ECB) and the Bank of England (BOE). While real interest rates remained positive, restraining economic activity, lower borrowing costs have fueled investment and consumer spending. Despite global uncertainties, including the potential for trade disruptions, the economic outlook for 2025 is optimistic. Lower inflation and a tight labor market are expected to support growth, making the environment more favorable for commercial real estate (CRE).
The CRE market in Europe is showing positive momentum, with improving capital markets and increasing investment returns. Logistics remains strong, with stable demand and rental growth, while the office sector continues to favor Class A spaces. The residential market benefits from strong demographic trends and limited supply, maintaining high occupancy and rent growth. Retail investment is rising as consumer confidence improves, and demand for data centers is accelerating with AI and cloud expansion. While risks like trade wars and geopolitical tensions persist, declining interest rates and stable market fundamentals position CRE for long-term growth.
