In the European real estate market, most segments look set for a gradual recovery, although risks remain. Economic growth is expected to improve over the year as interest rates support corporate investment, and real incomes rise. Real estate investment is set to rise as buyer and seller expectations increasingly converge, the flow of product to the market picks up, and more stable pricing allows for investors to underwrite returns. Lower cost of capital will also be accretive to returns and support increased investment volumes.

In the occupier markets, leasing activity is expected to increase, especially in the latter part of the year. In the office sector, consolidation of portfolios and real estate’s growing role in attracting employees will continue to drive demand for higher-quality buildings. Retailers and logistics companies are increasingly set to move forward with their expansion plans, again focusing on high-quality buildings. Greater nearshoring activity should provide an additional boost to the logistics sector. Vacancy levels generally look set to stabilise or edge downwards.

In some sectors – living and data centres – capacity bottlenecks or shortages are likely to be prominent, with consequences for pricing. The hotels market will benefit from higher tourist numbers. Sustainability will be a pervasive theme, with tighter and more complex reporting and disclosure requirements in Europe affecting all sectors.

Finally, we continue to account for alternate outcomes for economies, and their impact on real estate markets. On the upside, a short-term increase in economic growth driven by increased confidence in the private sector or higher public spending would boost occupier demand and support higher rents. By contrast, a business cycle recession, possibly linked to more restrictive trade practices or an escalation in geopolitical risks, would have the opposite effect.