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Real Estate

European Real Estate: Can the U.K. Continue to Lead the Recovery?

February 2025 – 8 min read

The U.K. led the rest of the world’s property markets in 2024—but now faces higher U.S.-style interest rates, and a much cooler Eurozone-style growth climate.

Executive Summary

ECONOMY

  • The Eurozone and U.K. economic recoveries disappointed in 2024, with no strong pick-up forecast in 2025.
  • The ECB and BoE are set to continue to cut interest rates, despite global bond market volatility around the new U.S. administration’s potential policies.
  • Assuming prime rents continue to grow, and interest rates fall, further real estate value appreciation looks highly probable this year—yet jittery global bond markets in early 2025 are a reminder that the path will not be plain sailing.

PROPERTY MARKETS

  • Prime rental growth is largely the consequence of chronic modern space shortages. With the development pipeline generally slowing, this lack of supply is only going to worsen over the next few years.
  • U.K. prime rental growth is outpacing other parts of Europe. The U.K.’s ultra transparent property market is expected to continue to outperform the rest of Europe in 2025 and perhaps into 2026.
  • Pressure to invest at the beginning of a new property cycle means capital will be tempted to seep into other sectors, with less than positive long-term prospects.
  • At the country/city and property sector levels, the speed of interest rate cuts, pace of rental growth and manageable refinancing debt funding gaps will likely dictate relative performance.
  • Retail may see some modest income growth but only where rents have been re-set low (relative to nominal turnover).

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Paul Stewart

Head of U.S. & European Real Estate Research & Strategy

Benjamin Thatcher

Associate Director

Joanne Warren

Director, Real Estate Research

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