Global Real Estate Outlook 2025

Data centers are also experiencing critical supply shortages in many markets around the world, with extremely high demand exceeding robust supply growth. Completions in 2025 are forecast to be above the 2021-24 peak across all three regions, with the largest percentage growth in markets including Atlanta, Portland and Phoenix in the U.S.; Madrid, Milan and Scandinavia in Europe; the Middle East region and Malaysia, Mumbai and Seoul in Asia Pacific. And yet shortages will still exist – such is the growing demand for data centers, boosted by AI requirements, that even this increase in supply will be only a fraction of what the market needs.

For Europe and the U.S., there are several implications from the broad-based slowing in new supply. Firstly, despite overall high vacancy in some property types, there will be a severe lack of high-quality available space options for office occupiers looking to expand or relocate into the top segment of the market. This will contribute to a higher share of renewals on lease expiry and require more proactive portfolio management. In this unique market cycle, tenants will need to plan ahead, get smart on options and costs, be creative and have a back-up plan.

Second, intensifying competition for top-quality space in the best locations will lead to a greater focus on redevelopment and retrofitting and stronger demand for emerging hot spots and next-tier assets. Supply constraints in European CBDs, as evidenced by vacancy rates of just 2.8% in Paris CBD and 1.5% for new supply in London, are leading occupiers to look in well-connected, CBD-adjacent sub-markets. And in the U.S., renovated buildings are absorbing more than 30% of occupancy gains, up by more than half compared to just two years ago.

For investors, another significant implication will be the importance of understanding supply and demand dynamics in greater detail. With interest rates and financing costs unlikely to return to 2021 lows, performance will be more determined by asset, market and sector selection and active management to drive income growth.