President of SIOR Europe, Iain Finnegan shares his views about the year ahead in a recent CoStar round up of 2025. Here is his article.
Europe is navigating a complex and ever-changing geopolitical landscape, from wars, to shifting trade dynamics, supply chain disruption, energy price volatility, regulatory pressures, and other economic and political uncertainties. The Society of Industrial and Office Realtors (SIOR) members worldwide are seeing how these factors are impacting Europe’s competitiveness, with knock-on effects on commercial real estate – and how the industry must be strategically agile to make it through the headwinds and emerge stronger on the other side.
The implications of the US continue to be strong, with tariff policy changes affecting global trade and causing a pull to the US as large organisations are cautious about signing major new leases in Europe; with investors, developers and occupiers on both sides of the Atlantic adopting a ‘wait and see’ approach.
Attitudes to sustainability
There’s a growing divergence when it comes to climate issues, with Europe hugely focused on ESG while the US has notably scaled back on sustainability policies. In Europe, the cost of building ESG-compliant offices or industrial premises is more expensive, meaning that it may be more cost effective for major corporations to build and operate in the US.
ESG remains important, worth the investment for the asset value and rental uplift it brings – not to mention a draw for commercial real estate investors and occupiers, particularly those with their own ESG commitments. Nevertheless, Europe may be over-regulated and too heavily tied to ESG targets from an economic and practical standpoint. There’s a careful balance to strike and, to bolster competitiveness, it may be necessary to scale back on some of the more ambitious goals. This is sentiment we have seen from our own conversations in the EU, as well as with the relaxation of MEES requirements for commercial properties from 2027 to 2028. Further evidence of the re-evaluation of the European ESG strategy can be seen with the recent announcement that the 2035 deadline for the sale of new fossil fuel vehicles is set to be pushed back.
In the UK and Europe, a great deal of outdated commercial stock will require costly retrofit to align with new standards. There should be some flexibility when deciding the most efficient way to modernise and reuse obsolete buildings, not ruling out demolition where it makes sense.
Energy security
A major structural challenge faced by Europe is much higher fuel costs compared to the US, resulting from the loss of cheap fuel from Russia. Consequently, there is a weakening of occupier demand in the more energy-intensive sectors like manufacturing. We need to consider alternative solutions to strengthen energy security, and nuclear presents a good way to produce cheaper, more sustainable and reliable power in the long-term.
This ties into another key element of competitiveness. AI is one of the biggest drivers of the US economy, and Europe risks falling further behind in the AI race by placing too many restrictions on where data centres can be delivered, often due to insufficient grid capacity. Significant amounts of electricity are needed to run AI-ready data centres to capitalise on the transformational potential of the AI boom. Again, looking to alternative energy sources can support this objective.
Rising costs
With higher construction costs and the cost of capital, many developers (especially in the office sector) are considering value engineering to maintain project viability. However, this is not a robust long-term strategy, as the flight to quality continues and the gap widens between Grade A and sub-standard stock. It also goes against the expectations that emerged post-Covid, including a richer mix of breakout spaces and amenities, to create workplaces conducive to modern working and enticing people back to the office. Overly aggressive value engineering would attract fewer occupiers, and push Europe’s competitiveness behind the US, where workspace offerings are rising to impressive new standards.
China’s expanding influence
China continues to dominate Europe’s imports, from electronics to larger goods such as cars. These dynamics will make it increasingly difficult for certain European industries to compete – with car manufacturing in Germany, for instance, heavily affected and potentially requiring some automotive assets to be repositioned for other uses. On the other hand, the industrial real estate sector can benefit in key corridors, through the greater demand for import hubs, logistics and distribution centres.
Building resilience
Across every facet of European economies, there will be a focus on resilience against outside influence – from energy provision to industrial buildings for armaments manufacturing – and heightened geopolitical risk will undoubtedly impact where projects are built.
Following a pause in activity, due to wars in Ukraine and Gaza, as well as elections in Europe and the US, considerable headwinds will remain – however, many of these have by now been factored into investment strategies. We are therefore cautiously optimistic that activity is likely to pick up by the second half of 2026, with opportunities for capital seeking a home.