Although ready to commence a new real estate cycle, real estate leaders globally are braced for another challenging year of uncertainty, with lingering inflation, largely driven by factors including geopolitical instability, and persistently higher interest rates in some regions, potentially delaying a hoped-for recovery in capital markets and occupancy metrics. This is according to the Emerging Trends in Real Estate® Global Outlook 2025 from PwC and ULI, which provides an important gauge of global sentiment for investment and development prospects, amalgamating and updating three regional reports which canvassed thousands of real estate leaders across Europe, the United States and Asia Pacific.
This year’s global report notes that political risk is an overarching industry concern, particularly in relation to how policy and legislative decisions will influence monetary policy, the prospects for economic growth, and the continuing impacts of global conflicts and disputes. Uncertainty, driven by factors such as the U.S. administration’s tariff policies and broader geopolitical shifts, is reshaping the global investment landscape. Financial markets and investment decisions across all three regions are being influenced by growing challenges and increasing regional divergences, potentially creating barriers to joint approaches to global crises.
In this context, political pushback against climate targets and the ESG agenda in the United States is beginning to influence Europe and potentially APAC. Meanwhile, shifting capital expenditures priorities across global real estate markets present an additional challenge. Sentiment varies by region, with 67 percent of respondents in Europe citing environmental or decarbonization requirements as important concerns, though the issue ranks lower among Asia-Pacific and North American respondents. Nevertheless, one solution cited by leaders is a core focus on demonstrating return on investment (ROI) in relation to energy and climate mitigation measures.
Despite these dominant uncertainties, among some respondents there is also optimism that the industry is close to ending a three-year journey to recovery, and a view that 2025 may breakthrough to a “reset point” or commence a new cycle, although there is caution also on the pace of recovery.
Lisette van Doorn, CEO, ULI Europe, comments, “Our annual global weather glass for real estate investment and development prospects shows that the industry is very keen to turn the page and start a new cycle on the back of lower inflation and subsequent initial interest rate cuts. However, wider (geo)political risks with potential monetary and macro-economic knock-on effects will lead to ongoing uncertainty for real estate investors and managers, and this calls for continued caution.
“Amidst this uncertainty, there are pockets of opportunity, largely driven by structural growth trends, such as demographics, digitisation and the energy transition. These developments drive where the money is being deployed.”
The survey anticipates slowly improving prospects for deals across all regional markets, with MSCI global investment data for 2024 confirming the trend, with transactions supported by increased pricing clarity. However, there is a risk that inflation may delay further recovery, particularly in the U.S.
Commercial Real Estate in Europe saw its busiest fourth quarter for two years, achieving €55.6 billion ($61 billion), and €188.8 billion ($206.6 billion) for the year, and 12 percent increase on 2023 (MSCI).
From a regional macro-economic, monetary and real estate perspective, Europe is thought to be on a good trajectory following central banks’ rate cuttings programme responding to lowering inflation and slower growth, and valuations reaching realistic levels. However, global geopolitical tensions will likely contribute some dark clouds in the region.
In North America, boosted by September’s rates cut, transaction volumes were 11.4 percent higher ($374 billion) following a year of significant contraction, and momentum gathering pace in the fourth quarter.
In Asia Pacific, volumes increased by 13 percent to $172.8 billion, though a major fourth quarter deal skews these results, where otherwise volumes were like 2023 (MSCI).
In both North America and Asia Pacific, interest rates and the cost of capital were perceived as a significant concern among respondents, with U.S. based investors also citing inflation as a factor in slowing the resumption of deals or contributing to a “corrugated” recovery.
Asia Pacific market activity has been slow to resume, experiencing low yields and interest rate challenges, and there are doubts expressed by respondents that capital markets can recover quickly. However, interviewees also highlighted opportunities from diversification and demographics such as population growth, with some markets in Asia Pacific, such as India, Indonesia and other southeast Asian countries, viewed as particularly promising for structural reasons.
Meanwhile, the overall global outlook for real estate debt in all regions is largely seen as positive.
Interviews undertaken for this year’s report also indicate that alternative assets featuring an operational component are surpassing most investment categories in terms of investor interest, from core to opportunistic, customarily yielding greater returns due to the range of in-house skills required.
The most compelling opportunities, the report finds, lie in the likes of logistics, data centers, and new energy infrastructure, which are attracting record interest, reflecting the rising importance of energy security, AI-driven expansion, and regional economic independence. The trend towards digital infrastructure, with data centers highlighted in the report as the most promising sector across Europe, North America and Asia-Pacific, resulted in record transaction volumes in 2024.
However, the report caveats that, to be successful, investors need to extend their expertise well beyond standard risk-reward metrics into digitization, AI, power requirements, and supply chain resilience, as well as focusing on strategic regional independence, including data sovereignty and energy security.
Thomas Veith, Global Real Estate Leader, PwC adds: “The global real estate markets are sending out positive signals. The trend towards operational real estate as a route to creating value is permeating nearly all investment categories. This brings with it the need for specialist, operational expertise, vertical integration, new partnerships and new investment constructs.
“In addition, our research suggests that the greatest opportunities for outsized returns lie with those assets at the intersection of real estate and infrastructure - with an acceleration of interest and capital deployment possible this year.
“One significant change is that every building block in the value chain of “investing in real estate” is being examined for its positive value contribution. ESG, availability of operational data, active management of office or the use of other building materials are being rethought. This process takes time but will encourage a lot of innovation. It will make the industry more resilient for the future, which is good and necessary.”
Living is also recognized as a trending sector, with deals in demographic driven subsectors including senior and student housing expected to remain prevalent this year, attributed to a widespread supply/demand imbalance in housing generally, with development at historic minimums in Europe and Asia, hindered by financial viability issues especially related to affordable housing, and planning constraints.
Finally, the report also finds that, in some markets, investor interest has returned for segments of traditional sectors including retail and some value-add offices where there has been sufficient repricing to offer attractive risk-reward potential. However, opinions are widely divided on the prospects for non-prime offices, particularly due to levels of hybrid working in the U.S. and Europe.
The implications for an anticipated increase in transaction volumes and a surge in investor interest for hospitality real estate around the world this year, and the prospects for secondary or commodity offices against this context, are also both featured in more detail as trending topics in Emerging Trends in Real Estate® Global Outlook 2025.
