Understanding structural changes in real estate to invest in tomorrow
The European economy is at a turning point. After years of cheap loans, interest rates have taken a sharp upward turn. Property transactions have slowed, prices are down, and investors are erring more on the side of caution.
But behind this cyclical turbulence lie deeper, structural shifts — demographics, consumer behaviour, the energy transition and new uses. These megatrends are transforming the sector and making lasting changes to the supply, demand and value of real estate.
We can be ready and adapt to these changes by building resilient strategies that combine financial performance and sustainable impact.
The changing demographics driving new real estate strategies in Europe
The global population has ballooned from 2.5 billion in 1950 to over 8 billion today. By 2050, it is expected to reach almost 10 billion (1), with a booming middle class in Asia in particular.
This is a tremendous opportunity for Europe. While it can’t boast high demographic growth, it can leverage its status as a top tourist destination and a continent that is stable on the whole. The numbers speak for themselves: in 2024, over 747 million international tourists — nearly 53% of tourists worldwide(2) — flocked to Europe. It's a boon for property development, especially in cultural hubs, coastal areas and wine-growing regions.
Except that by 2050, almost 30% of Europe's population will be over 65, versus 20.9% today(3). This is having a profound effect on property, as more adapted housing, senior residences, healthcare facilities and intergenerational housing will be needed. Supply is already struggling to keep up, particularly in medium-sized towns and rural areas. There is a potential for property to become a source of social change by offering opportunities to develop affordable housing, managed residences and medico-social facilities.
From click to collect: new consumer habits and forms of property investment
Across Europe, consumer habits are changing in step with digitalisation, new consumer demands and geopolitical tensions. Over the next few years, e-commerce is expected to make up almost 21% of retail sales in Europe versus 10-13% today(4). This will drive up demand for logistics real estate, i.e. modern hubs located close to urban centres. The geopolitical climate could also drive reindustrialisation efforts to make Europe more self-reliant, giving rise to local logistics and industrial hubs.
Physical retail real estate is not disappearing; it is evolving. Retail and logistics are no longer separate and have become the two pillars of an integrated ecosystem at the service of brand performance. Two pillars that have the potential to harness the growth of e-commerce, rejuvenate urban areas and reinvent retail, while relying on stable returns and assets with high usage value.
Energy transition: from constraint to opportunity
Accounting for almost 36% of greenhouse gas emissions(5), the real estate sector is central to ecological transition strategies . It is under pressure from tougher regulatory requirements (green taxonomy, energy performance diagnostics, etc.), but also from greater financial expectations from ESG-conscious investors(6).
Although long perceived as a constraint, the energy transition is in fact driving value creation. Indeed, aligning real estate with decarbonisation targets is no longer an option, but a prerequisite for sustainable value creation. It has become a strategic necessity to retrofit existing properties to improve their energy performance.
New-builds are also moving towards low-carbon, convertible models (vacant offices turned into housing, disused barracks turned into schools or libraries, etc.) with improved energy efficiency and environmental integration.
Reimagining the office to a new reality
Since the take-off of remote working during the pandemic, the growing service economy and the slowdown in urban expansion, offices in Europe are metamorphosing. Although many companies are calling their teams back to the office, expectations have changed. Employees now want offices that meet their needs, without being imposed on them. That's why companies are rethinking their office layouts in favour of hybrid, flexible spaces designed to encourage collaboration, creativity and well-being.
Buildings that can integrate accessibility, modularity, services and energy efficiency will benefit from a long-term value premium. Obsolete or poorly located properties, on the other hand, run the risk of becoming more vacant.
The issue of existing office space, especially in France, is becoming increasingly problematic. Other than much of it no longer meeting today's standards, they’re hard to turn into housing. Faced with budget cuts, municipalities often prefer maintaining service sector infrastructure and the stable source of revenue it brings (property tax, business property tax). Not only would converting offices into housing lower their revenue, they would need to finance the additional infrastructure (day-care centres, schools, public facilities) required by new residents. Rent control and inflexible lease agreements also make residential property less lucrative than office property. And the high cost of conversion make operations less profitable.
These megatrends have the potential to create opportunities for innovation and value creation for investors. Whether urban logistics, senior residences, energy-efficient buildings or conversions, the most successful strategies will be those that embrace these changes.
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