February 4, 2025CopyShare quote
What’s the outlook for real estate around the world in 2025? Factors such as growing cross-border deals, increased distressed opportunities and population growth will boost activity in some areas. But, weakening trade links and industrial recalibration could cause slowdowns in others. This month, we explore market prospects for Asia Pacific, North America, Europe and the Middle East – as well as the forecast for global prime residential prices.
Investment volumes in the Asia Pacific region picked up in late 2024. Simon Smith, our Head of Asia Pacific Research, expects them to rise further in 2025, buoyed by a positive economic outlook and a clearer interest rate trajectory. However, weaker investment sentiment is expected in China and Hong Kong.
Prime office assets in well-located areas will continue to attract significant attention. The living sector and “beds and sheds” will remain popular, particularly in Japan and Australia, contributing to stable rental incomes and attractive yields.
Demand for industrial and logistics assets is also likely to continue as rising tariffs on Chinese imports boost demand for warehouse space in emerging Southeast Asian markets like Vietnam and Indonesia.
The occupier outlook is cautiously positive, with most regions expecting mild growth. Consistent demand for rental housing is projected to fuel growth, particularly in the multifamily sector in Japan and the build-to-rent sector in Australia.
After a transitional 2024 dominated by inflation and geopolitical tension, we expect 2025 to see a shift from crisis management to growth-oriented policies.
Annual investment volumes for 2024 are estimated at €174 billion, a 17% increase on 2023. This year, Lydia Brissy, Savills Director, European Research, forecasts 23% growth to €214 billion, driven by buyer-seller alignment, growing cross-border activity and steady demand for income-generating assets.
Office market recovery will be propelled by companies upgrading spaces to attract talent, a resurgence in tech sector demand, easing inflation and stronger consumer purchasing power.
While the logistics sector remains a key focus for investors, with low vacancy rates and a relative lack of new developments, geopolitical uncertainties present a significant risk.
Urbanisation trends and tight mortgage conditions are driving demand for rental properties. Institutional investors will target ESG-compliant build-to-rent projects.
As monetary policy eases further in 2025, financing conditions are expected to improve, attracting renewed investor interest.
In the US, Marisha Clinton, Vice President, Research East, explains how office space oversupply persists, although leasing and conversions will reduce some excess. But it is distressed office opportunities that will lead the charge as more landlords fail to agree new terms with lenders.
In terms of office rents, occupier demand is growing more quickly than supply in the premium market. Elsewhere, occupancy rates continue to lag. Landlords may focus on retaining tenants, ultimately causing flatter growth.
Office valuations dropped by double digits last year and are expected to decline further in 2025. Many investors will continue to seek sharply discounted offerings.
According to Mark Russo, Vice President, Industrial Research, industrial and logistics investment will rebalance after a weaker 2024, despite uncertainty around the economy and tariffs. Niche assets such as industrial outdoor storage and data centres will benefit from supply constraints tied to zoning and power supply. Industrial yields are expected to remain largely stable.
Despite wider regional tensions, real estate in the core markets of the Middle East are performing well.
Here’s how key markets compare according to Rachael Kennerley, MRICS, Director, Middle East Research:
UAE: Demand for residential property will be fuelled by population growth and an influx of ultra high net worth (UHNW) individuals and family offices. While supply constraints may put pressure on capital and rents, increased development activity should balance this out.
In Dubai, prime office rents grew by 9% last year, thanks to low vacancy rates across prime and Grade A assets. We anticipate cooling in 2025, given the strong supply pipeline of approximately one million square feet of stock.
Abu Dhabi, meanwhile, has the largest concentration of global sovereign wealth capital. The city’s financial centre, Abu Dhabi Global Market, is now considered a better value proposition than Dubai.
Saudi Arabia: the country is entering 2025 with positive momentum driven by its Vision 2030 initiative, hosting of world events and ambitious giga projects.
Egypt: Egypt’s real estate market showed strong growth in 2024 despite inflation, currency depreciation and rising construction costs. In Greater Cairo, rising inflation is straining local purchasing power, which may slow sales.
If 2024 was the year of elections, 2025 looks set to be a year of policy change. How will this impact prime residential markets? Kelcie Elizabeth Sellers, Associate Director, World Research, takes a look at the forecast.
We expect average global capital value increases of 1.6% across the 30 global cities we monitor this year. This is lower than the 2.2% recorded in 2024 due to persistent global headwinds.
A strong supply pipeline and ambitious developments mean Dubai is forecast to see the strongest 2025 growth, between 8% and 9.9%. Sydney, Madrid, Barcelona and Lisbon are also expected to perform well.
At the other end of the spectrum, we expect negative capital value growth for Singapore, China and the UK. The UK’s abolition of ‘non-dom’ status and the additional 2% stamp duty will likely push prime values down by approximately 2%. In Singapore, economic challenges and low demand means price growth is forecast to drop to between -1.9% and 0%.
The US sits somewhere in the middle. Capital value growth across the four US markets in the World Cities Index is forecast to tick up 0.7% on average over the course of 2025, with Miami leading the pack.
