The real estate market in Europe and the UK: between correction and new growth

The property market in Europe and the UK is going through a difficult period of transformation in 2024-2025. After several years of rapid growth driven by record low interest rates, the economic recovery from the pandemic and high demand for housing, it has faced a correction phase that has affected almost all segments - from residential real estate to commercial properties. The impact of global inflation, rising prices for construction materials and energy, tightening credit policies and rising mortgage rates have led to a significant decrease in the affordability of housing for the population, especially in large cities.

" We are seeing a shift from a seller's market to a buyer's market, especially in the secondary housing segment. High mortgage rates are the main deterrent that is forcing developers to rethink strategies," notes financial expert Avi Itzkovic . "This is especially noticeable in markets where housing prices reached peak values in 2022."

2024 was marked by a general decline in market activity. In Western Europe, the average cost per square meter decreased by 5–8% compared to the record year of 2022. The largest decline was felt in Germany and the Netherlands, where the ECB's rate hike cooled demand for new buildings. In Germany, some large developers suspended the launch of new projects due to the increase in financing costs and lower profitability. The situation in France looked somewhat better: although housing prices in Paris decreased, the rental segment continued to grow, as rental demand remains stable due to high purchase prices.

Southern Europe, on the contrary, has shown relative stability. Spain and Portugal continue to attract buyers from Northern Europe and the Middle East, who consider housing in these regions as a way to diversify their investments. The market is also positively affected by the “golden visa” programs that stimulate the purchase of real estate by foreigners. It is worth mentioning Poland separately , which, against the background of a significant influx of Ukrainians, has maintained high demand in Warsaw, Krakow and Wroclaw. In 2024, apartment prices in these cities increased by 2–3%, which contrasts with most EU countries.

The UK has faced its own challenges with Brexit and rising inflation. The Bank of England’s rate hikes have made mortgages too expensive for many households. This has had an immediate impact on demand in the mid-market. However, the premium market, particularly in London, has remained resilient. Here, investors from the Middle East and Asia continue to invest in high-end apartments and historic buildings, which has kept prices from falling. The situation is worse in the regions of the country, with prices down 7-10% in the north and in less attractive cities.

The rental market in Europe and the UK has become another key indicator. Due to more expensive mortgages, more and more people are choosing renting as a more affordable alternative. In Paris and Madrid, rental rates increased by 4-6% in 2024, in London by 7-8%. In large Polish cities, this figure reached 10% due to increased demand from foreigners. This trend is changing the structure of the market, making renting not only a temporary but also a long-term solution for a significant part of the population.

Analysts see 2025 as a possible turning point. The central banks of the EU and the UK are already signaling their readiness to gradually lower interest rates in the second half of the year. If these expectations come true, this will stimulate mortgage lending, bring some buyers back to the market and allow developers to step up new projects.

 " The European market still remains quite fragmented. While some countries struggle with falling demand, others gain momentum from internal migration and investment from abroad. Overall, 2025 may be a year of gradual stabilization, but it is too early to talk about rapid growth," notes Avi Itzkovic.

The environmental agenda remains an important factor for the EU. Energy efficiency requirements for housing, programs for the modernization of old buildings and the transition to "green" standards make the market more competitive, but at the same time increase the cost of construction. This may lead to the emergence of new investment formats, in particular state-supported projects focused on affordable housing. The United Kingdom is developing its own initiatives in this direction, but focuses on the renovation of old housing, which is more in demand among domestic buyers.

Another interesting trend is the growing interest in regional cities and suburbs. In many EU countries, as well as in the UK, working from home, which has become commonplace after the pandemic, is encouraging people to choose housing outside the metropolises, where prices are lower and the quality of life is often higher. This creates a new balance between the center and the periphery: satellite cities are developing faster , receiving new infrastructure projects and attracting developers.

The market will remain heterogeneous in the perspective of 2025. Europe has the advantage of a large and diversified space with many investment directions - from Germany to Spain. The UK, despite local problems, benefits from the high liquidity of the London market and the interest of global investors. However, the general trend for all markets is the strengthening of the rental segment and a shift in focus from quick resales to long-term investments.

Given current trends, we can say that 2025 will be a year of gradual stabilization, but not a sharp increase. Developers will focus on projects with high energy efficiency, while buyers and tenants will continue to adapt to new financial realities. For those who consider the real estate market as an investment tool, three factors will remain key: location, quality of the object and the ability to adapt to new requirements of environmental friendliness and accessibility.