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Real estate is a hugely important asset class, attracting significant levels of both institutional and private investment. However, the market has come under pressure in recent times due to a generally subdued economic climate internationally, high levels of inflation and rising interest rates. But there may be light at the end of the tunnel, with signs that the market (and property valuations) are slowly improving again.

With that in mind, what are the key factors for investors and property owners to consider during 2025? Here are 10 top considerations in a complex and evolving market � from ESG and AI through to taxation, regulation and shifting societal dynamics.

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The focus on environmental, social and governance (ESG) factors has significantly increased in the real estate sector. These factors are not just trends but critical drivers for long-term value creation in the industry. Investors and developers are increasingly prioritizing ESG factors to enhance long-term value and meet growing consumer and regulatory expectations. Consumers are becoming more aware of the importance of sustainable and ethical practices, pushing real estate developers to integrate green technologies, energy-efficient designs and fair labor practices into their projects. We can expect some investment locations to be heavily impacted by global warming trends � which could continue to accelerate. Upgrading existing property stock through ESG related capex is becoming ever more important.

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Regulatory changes in the real estate sector are inevitable, as governments update laws and policies to reflect economic shifts, changing social needs and emerging environmental considerations. These changes could include alterations to zoning laws, tax codes, building codes, regulatory frameworks for investment vehicles and sustainability requirements. For real estate investors and developers, staying ahead of regulatory changes is key to minimizing risks and maximizing opportunities. As urban areas grow and global concerns like climate change influence policy, understanding and adapting to regulatory changes will remain a crucial part of the business landscape.

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Digital transformation is reshaping the real estate sector, with Artificial Intelligence (AI) at the forefront. AI is being leveraged for property valuations by analyzing vast amounts of data, providing more accurate and timely assessments. Moreover, AI-driven property management, finance/accounting and oversight tools are automating elements such as tenant communication, maintenance scheduling, finance and investor reporting and rent collection. As technology continues to evolve, real estate professionals are embracing these innovations to streamline operations, reduce costs and offer better services to tenants and investors. The transition to digital tools is not just improving efficiency � it’s revolutionizing the industry.

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Blockchain technology is revolutionizing the way real estate transactions are conducted, offering increased transparency, security and efficiency. By using decentralized ledgers, blockchain reduces the risk of fraud, simplifies contract management through smart contracts and ultimately accelerates the entire buying or selling process. It also reduces transaction costs, as parties can execute property deals with fewer intermediaries. As blockchain adoption grows, we can expect it to significantly disrupt traditional property processes, changing the role of traditional service providers and intermediaries.

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Taxation plays a significant role in shaping the real estate market, as it affects both individual property owners and large investors. Property taxes, capital gains taxes and tax incentives for development projects all influence real estate decisions. Changes in tax policies � such as the introduction of higher capital gains, transfer taxes or new property tax regulations � can have a significant impact on the profitability of real estate investments. As governments look to balance economic growth and public spending, understanding the evolving tax landscape is crucial for anyone involved in the sector.

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Financing mechanisms are crucial for both residential and commercial projects: without them, most deals simply wouldn’t happen. Traditional bank loans, alternative providers of finance and even crowdfunding have become popular avenues for securing capital. The rise of digital lending platforms and alternative financing models is also disrupting the traditional real estate funding landscape, making capital more accessible to a broader range of investors. Understanding mortgage rate trends is also key, due to their inevitable impact on levels of activity in the market.

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The rental market is a critical component of the real estate industry, with demand for both residential and commercial properties being shaped by multiple factors. In many urban areas, population growth and the shift towards more flexible living arrangements are increasing the demand for rental properties. However, rental markets can also be influenced by broader economic shifts, such as changes in employment rates or interest rates.

For existing or new residential projects, a “buy or build to rent� rather than “buy or build to sell� strategy seems to be emerging, strongly influenced by the continuous upward trend in housing values which means that, in many markets, fewer people can afford to buy their own homes.

Additionally, the younger generation is more mobile than ever, which is fueling the popularity of concepts such as shared rentals and/or ownership schemes rather than traditional ownership.

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Valuation models are crucial as they provide a systematic approach to determining the market value of a property and are essential for mortgage, insurance, taxation and legal purposes. They also help investors assess risks and project returns, as well as secure financing. In 2025, there are grounds for cautious optimism regarding valuations, with the market showing signs of slow improvement. Lower interest rates are helping, and the hope is that buyers and sellers will better align on pricing, increasing transaction volumes.

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Urbanization is a growing global trend with a profound impact on the commercial real estate sector. As populations continue to migrate to cities, there’s a significant rise in demand for office space, retail hubs and residential developments. Urbanization is also fueling the growth of infrastructure projects, such as transport networks and housing developments. For real estate developers, urbanization offers vast opportunities but also presents challenges in terms of land availability and resource management.

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As property prices continue to rise, instead of tying up large sums in physical bricks and mortar, many investors and property speculators may choose to invest smaller amounts in diversified real estate funds. By pooling funds with other investors, individuals can diversify their portfolios and mitigate risks, making real estate investment more accessible and flexible. This trend reflects the changing dynamics of property investment, driven by financial constraints and a desire for more liquid, lower-risk options.

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And then there is geopolitics� Over and above these 10 trends and their impacts on real estate markets, the global geopolitical situation is rapidly changing and evolving.  From trade to security alliances, shifts are happening which may lead to more regional trade flows and substantial investments in local industries.  This will have an impact on local economies and therefore local real estate (and infrastructure) markets.  Investors should be aware of these forces and be prepared to endure some volatility.  In these markets, a well-diversified real estate investment portfolio is wise and has historically achieved positive returns over the long term.

Do you agree with my top factors affecting real estate in 2025? I’d love to hear your views.

At ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in Luxembourg, our real estate team supports clients in all stages of the real estate investment lifecycle. We bring value through our multidisciplinary approach where we combine cross border expertise in tax, audit, accounting, funds services, valuation, consulting and deal advisory together with our global network. Please don’t hesitate to get in touch.

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This article was co-written by Joseph de Souza, Partner, Real Estate Market Leader at ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø Luxembourg.