European Real Estate Market Mid-Year Update: Recovery Signals and Investment Opportunities (H1 2025)
After several years of volatility and uncertainty, Europe’s property markets are starting to show renewed strength. The first half of 2025 was characterised by gradually improving investment activity, stabilising or rising rental values, and persistent supply shortages across key sectors and geographies. While challenges remain, especially on the supply side, the overall picture points to the beginning of a recovery cycle driven more by income growth than by capital appreciation.
Price and Investment Trends in H1 2025
- Total commercial real estate investment reached €76.7 billion, slightly higher than in the first half of 2024. This uptick reflects a cautiously more optimistic investor mood after multiple European Central Bank rate cuts in early 2025 eased financing conditions and bolstered appetite for income-producing assets.
- Retail and logistics led the way in investment growth, with volumes up 15% and 7% year-on-year respectively. These sectors are benefiting from structural changes in consumption patterns, e-commerce, and supply chain resilience strategies.
- Residential and industrial/logistics sectors showed particularly strong rental growth, supported by low vacancy rates and persistent housing supply shortages across Europe’s major cities.
- Office investment remained stable at €19.6 billion, underpinned by tenant demand for high-quality, modern space and portfolio consolidation by large occupiers.
- Hospitality sector investment slowed compared to 2024 but still reached about €10 billion, supported by increasing tourism demand across Europe.
Sector and Regional Highlights
The living (residential) sector continued to benefit from demographic changes, urbanisation, and a rise in household formation. However, new construction activity slowed due to rising costs, financing challenges, and regulatory delays — a combination that is further constraining supply and putting upward pressure on rents and prices.
Southern Europe — including Portugal, Spain, and Italy — stood out as a bright spot. Transaction volumes exceeded €12 billion in the first half of the year, a 30% increase year-on-year. Portugal alone saw a remarkable 70% jump in commercial real estate investment, notably in retail and hospitality. This influx reflects both international capital seeking attractive yields and a resilient domestic market.
Portugal: A Market Leader Within the EU
Portugal’s residential market continues to lead the EU in price growth. By the first quarter of 2025:
- National median house prices reached €1,951 per square metre, up 4.3% from the previous quarter and more than 18% year-on-year.
- Lisbon, Cascais, and the Algarve remain the priciest regions, with the Algarve seeing a 13.8% increase and average prices reaching €3,467 per square metre.
- Demand is powered by international buyers — particularly from the UK, France, Germany, the Netherlands, Poland, and North America — seeking both investment and lifestyle opportunities.
- The first quarter saw double the number of property sales compared to early 2024, reflecting a robust rebound after a brief slowdown caused by US tariff policy uncertainty in April–May.
While the housing crisis in urban areas is intensifying as supply lags far behind demand, opportunities remain for value purchases beyond Lisbon and the coast, especially in Porto and emerging regions.
Market Drivers and Emerging Trends
Several factors are shaping Europe’s real estate recovery:
- Monetary policy support. The ECB’s multiple rate cuts in early 2025 improved financing conditions and lowered borrowing costs, supporting increased investment appetite.
- Shift to income-driven strategies. As capital values stabilise, investors are focusing more on rental growth and active asset management rather than purely on capital appreciation.
- Sustainability and ESG standards. These continue to grow in importance, influencing both investment decisions and development standards across Europe. Assets meeting higher ESG criteria are commanding stronger demand and, increasingly, rental premiums.
- Persistent supply shortages. Across residential and commercial sectors, particularly for high-quality and newly developed assets, supply constraints are keeping upward pressure on rents and prices.
Outlook
Looking ahead to the second half of 2025 and into 2026, Bravura Investments expects the European real estate market to continue its gradual recovery. Portugal is likely to maintain strong property price growth for the remainder of 2025, albeit at a more moderate pace (forecast 8–9% increase next year). However, construction remains insufficient to meet rising demand, and government measures to address housing shortages will take time to have an impact.
How Bravura Investments Can Help
At Bravura Investments, we specialise in helping investors navigate Europe’s evolving real estate landscape. We combine market intelligence, data-driven insights, and local expertise to identify opportunities and design tailored strategies — from residential and commercial acquisitions to portfolio diversification and ESG-compliant investments.📩 Contact our team at Bravura Investments to discuss how we can support your real estate investment strategy and help you capitalise on the opportunities emerging in this new cycle.