London continues to lead the city rankings for European real estate investment and development prospects, despite a slowdown in recovery, according the latest report from PwC and the Urban Land Institute (ULI).
The report, Emerging Trends in Real Estate, based on a survey and interviews with 1,498 senior property professionals, said while London continues to top the rankings since 2022, ahead of Madrid and Paris, overall recovery and growth is expected to remain uneven and take longer than previously anticipated.
Expectations for business profitability has softened, with 45% of respondents expecting an increase in 2027, compared with 50% in last year’s report.
The report accredits this to uncertainty from macro and business headwinds, including international political instability, rising energy and construction costs, inflation, and ‘higher-for-longer’ interest rates.
Construction costs and resource availability was the most cited real estate issue causing concern in 2027 (58%) and in the next five year (53%). Interest rate movements topped the list of business environment concerns for next year and the next five years, for 55% and 51% of respondents respectively.
Two thirds of respondents highlighted the escalation of global conflicts, such as the wars in the Middle East and Ukraine, as the biggest social and political issue for the real estate sector in 2027. Next on that list were international political instablility (53%) and national political instability (41%). These were followed by a third (34%) of respondents saying they are concerned about housing affordability. The report added the housing crisis will also impede Europe’s economic competitiveness over the long term, with affordability and supply the biggest challenge facing Europe in the next decade above climate adaptation, infrastructure provision and social cohesion.
According to the report, the industry’s focus is also shifting priorities towards areas such as energy transition, digital infrastructure, and housing, with data centres and new energy infrastructure ranking first and second respectively for investment prospects.
Data centres were cited as being in the lead by a “significant margin” for investment, development and income growth, despite concerns about the environmental impact and underlying worries over investment in AI infrastructure spending.
Jean-Baptiste Deschryver, real estate leader at PwC EMEA, said: “The European real estate outlook for 2027 is more nuanced than a simple narrative of a stalled recovery. Despite a challenging near-term economic backdrop, occupier demand remains resilient.
“Meanwhile, the increasing influence of family offices and other sources of private capital is helping to offset the continued caution of core institutional investors. Our research suggests that this divergence is creating meaningful opportunities, particularly where market dislocations have opened up attractive entry points.”
Simon Durkin, chief executive of ULI Europe, added: “While a longer than expected recovery isn’t what we’d hoped for European real estate, this year’s survey does reveal our industry’s great capacity to adapt to the continued uncertainty, and it highlights its resilience as it adapts to a prolonged period of transition.
“Undoubtedly, there are still many challenges ahead, from the housing crisis to climate risk, but clearly there are important opportunities too.”
Three quarters of respondents also believe smart buildings and digital capabilities create a major competitive advantage for real estate. Leaders across the industry also see “significant opportunity” from AI’s ability to improve efficiency while informing future development and investment decisions.