European real estate market outlook Q4 2025 | Aberdeen Investments

Overview of the Report

The Aberdeen Investments outlook, authored by senior analysts Craig Wright and Stephan Schanz, offers a comprehensive view of Europe’s real‑estate market for Q4 2025. Aberdeen Investments is a global asset manager with a strong research platform, and the authors bring extensive experience in European macro‑economics and property analysis.

Economic Resilience and Growth Outlook

Eurozone GDP growth is projected at 0.9 % in 2024, rising to 1.2 % in 2025 and 1.5 % by 2027. Inflation remains near the European Central Bank’s 2.2 % target, with consumer expectations at 2.8 % for 2025. The ECB is expected to hold policy rates at neutral levels, with only limited scope for further cuts. These macro conditions underpin a gradual recovery in real‑estate performance across Europe.

Office Market Trends

Office vacancy fell to 14.1 million m² in June 2025, down from a peak of 14.6 million m² in March 2025. New office supply is shrinking, projected at 0.6 % of total stock in 2026‑27, well below the long‑term average. Net absorption hit a record low of –38,000 m² in June 2025, reflecting tenant consolidation and lingering uncertainty in key cities such as Paris.

Logistics and Industrial Outlook

Logistics vacancy sits at 6.3 %, the highest since 2016 but still below the long‑term average of 7.9 %. Demand is stabilising as defence spending rises and e‑commerce growth returns to a 4 % annual rate. The sector remains sensitive to interest‑rate expectations, yet supply constraints suggest a modest upside for investors.

Retail Sector Performance

Retail parks delivered a 6.2 % property‑level return to June 2025, close to the long‑term European average and slightly below the UK’s 6.6 % return. Retail vacancy fell to 5 % in June 2025, the lowest in a decade, while rental growth accelerated to 2.7 % year‑on‑year, the strongest in 15 years. Investor sentiment is increasingly positive, with capital inflows rising 21 % year‑to‑date.

Residential Market Strength

Residential assets show the strongest fundamentals, with vacancy rates ranging from 1.2 % to 2.4 % across major cities. Rental growth remains robust at 6.2 % annualised in June 2025, supported by low new‑construction volumes and persistent undersupply. Transaction volume in residential reached €10.6 billion in Q3 2025, a 25 % YoY increase, accounting for 25 % of total European real‑estate deals.

Returns, Risk and Investor Outlook

Total‑return performance for European property averaged 6.2 % to June 2025, with expectations to climb to 7.1 % over the next 12 months and 8.9 % over three years. Core‑plus and value‑add strategies are favoured, especially in industrial, residential, hotel, student‑accommodation, retail‑warehousing and core‑office assets. Main risks include potential trade‑tariff escalation, a steeper yield curve, and sovereign debt concerns, though a recession is not the base case.

Sustainable Housing Focus

The report highlights sustainable housing as a key growth driver. Low construction activity, combined with strong rental demand, encourages developers to adopt energy‑efficient designs and retrofits. Sweden’s upcoming Presumption Rent Reform (effective 1 January 2026) will allow rent adjustments linked to local market trends, incentivising investment in greener, higher‑quality rental stock. Across Europe, the push for decarbonisation aligns with investor interest in resilient, low‑carbon residential portfolios.