After two years of declining transactions, optimism is slowly returning to the European real estate market. According to an analysis by financial data provider MSCI, the investment volume increased by 4 percent to 189 billion euros in 2024, after having dropped by 45 percent in the previous year. Residential properties, hotels, and logistics centers were particularly in demand, while office spaces continue to lose attractiveness.
The recovery was driven by increased activity in the second half of 2024. Office real estate recorded its weakest year since 2009 with a decline of 10 percent, mainly due to the trend of hybrid work and high renovation costs for older buildings. In contrast, the market for residential real estate and hotels is booming as investors shift to long-term stable and less risky segments.
The market stabilized at the beginning of 2024 and continues to be driven by demand for residential real estate," said Chris Brett, Head of Capital Markets Europe at CBRE. "Interest in residential real estate will continue to dominate in 2025.
While real estate prices have fallen by an average of 23 percent since their peak – even by 38 percent for office buildings – uncertainty about interest rate developments remains a risk factor for recovery. "The market environment is cautiously optimistic," says Tom Leahy, Head of Real Assets Research EMEA at MSCI. "The recent volatility in the bond market could mean that interest rates remain high longer than expected.
Despite the challenges, London remains a magnet for international investors. Transaction volumes in the United Kingdom rose by 26% in 2024, as the significant market correction led to a greater willingness to close deals on the seller side. Among the largest deals was the acquisition of a 50% stake in the Broadgate skyscraper by Abu Dhabi's Modon Holding, which is seen as a positive signal for the office sector.
US investors continued to dominate the market: Blackstone, TPG, Starwood, KKR, Ares, and Greystar were among the most active buyers. Blackstone's sale of a luxury retail property in Milan to Kering, as well as stake sales in the UK shopping centers Liverpool One and Meadowhall, were among the largest transactions of the year.
While analysts initially expected a wave of emergency sales, foreclosures and loan defaults have so far not materialized. However, a study published by the New York Federal Reserve in October warned that the banks' behavior to date – often referred to as "extend and pretend" – could slow down the necessary capital recycling in the long term and increase potential losses in the future.
