Luxembourg Real Estate Market in 2025: Current State and Future Perspectives

The Luxembourg real estate market has undergone significant transformations in recent years, transitioning from a period of sustained growth to a correction phase followed by stabilization. At the beginning of 2025, after several quarters of decline, a slight recovery seems to be emerging. This article provides an in-depth analysis of the current situation of the Luxembourg real estate market and its future evolution prospects.

A Market in Transition After a Correction Period

From Overheating to Stabilization

The Luxembourg real estate market experienced exceptional growth between 2010 and 2022, with an average price increase of 5.7% per year between 2010 and 2017, followed by a marked acceleration: +7.1% in 2018, +10.1% in 2019, and up to +14.5% in 2020. This spectacular rise was mainly explained by a structural imbalance between supply and demand, fueled by strong demographic and economic growth.

However, from 2022 onwards, several factors caused a significant slowdown in the market. Rising interest rates, inflation, increasing construction costs, and geopolitical uncertainties led to the first price decrease since 2009. In 2023, the market recorded a 1.5% drop in the first quarter compared to the same period in 2022, with significant disparities depending on property types: +0.4% for existing apartments, -0.4% for off-plan sales (VEFA), and -4.3% for existing houses.

This downward trend intensified in the second quarter of 2023, with a dramatic 13.5% fall for existing houses and 4.5% for older apartments. Only new apartments saw a slight increase of 2.2% after two quarters of decline.

A Recovery Beginning in 2025

After five consecutive quarters of decline, the Luxembourg real estate market has shown signs of stabilization since late 2024, and a slight recovery seems to be emerging in the first quarter of 2025. This positive trend is explained particularly by falling interest rates, better control of inflation, and the gradual return of investor and buyer confidence.

Structure of the Luxembourg Real Estate Market

Demographics and Housing Needs

Luxembourg continues to experience sustained demographic growth. As of January 1, 2024, the country had 672,050 residents, an increase of 2.4% in one year. This population is characterized by its diversity, with 47.3% of foreign residents representing more than 195 different nationalities.

This demographic growth, combined with evolving lifestyles (decreasing household size, increasing divorces, aging population), generates significant housing needs. According to estimates, Luxembourg would need 5,600 to 7,500 new housing units per year until 2060, depending on the economic growth rate. However, current production remains insufficient, with approximately 4,000 units delivered per year before the health crisis, and a significant decrease in 2022 and 2023.

Residential Market Prices

Residential real estate prices vary considerably depending on location. As of June 30, 2024, the average price per square meter for an existing apartment in the canton of Luxembourg was €9,519, compared to €6,050 in the northern part of the country. For apartments under construction, prices reached €11,793 per square meter in the canton of Luxembourg and €6,718 in the north.

For houses, the average price in the canton of Luxembourg was approximately €1,265,000, 78% higher than in the northern part of the country. The gap between the national average and prices in Luxembourg City is even more pronounced.

Rental Market

The rental market has also experienced significant developments. Between 2010 and 2022, apartment rents increased by an average of 4% per year, a cumulative increase of 53.2%. For houses, the increase was 3.2% per year, or +41.4% over the period.

After a strong increase in 2023 and early 2024, a decrease in rents began in late 2024, confirmed in the first quarter of 2025 with -2.5% for apartments and -1.8% for houses. The average rent for an apartment in Luxembourg is now €1,779 per month, while a house rents for an average of €3,152 monthly.

Factors Influencing the Market

Land Potential and Construction

Land potential remains a major issue for the Luxembourg real estate market. About one-fifth of the land is still available for construction, with 793 hectares available for housing. However, this potential is largely concentrated in the hands of private actors (89%), with public actors holding only 11% of the land.

Land prices have increased steadily since 2010, with an average annual increase of 8.5% between 2010 and 2022, a cumulative increase of 150.4%. This increase was particularly marked between 2017 and 2020, before slowing down in recent years.

There is also a trend toward densification, with a growing preference for apartment building construction rather than individual houses. Between 2010 and 2016, 60% of housing units built were apartments, compared to 40% single-family homes.

Impact of Public Policies

Public policies play a crucial role in the evolution of the Luxembourg real estate market. The government has implemented various measures to promote access to housing, including:

• Increasing the housing budget, which reaches €500 million in 2025
• Developing affordable and social housing
• Increasing individual housing assistance
• Administrative simplification, including extending the validity of building permits from 1 to 2 years
• Incentive tax measures, extended until July 1, 2025

Economic and Financial Factors

The economic and financial situation strongly influences the real estate market. After a period of high inflation (5.4% in 2022, 3.8% in 2023), it has stabilized at more moderate levels (2.6% in 2024). Interest rates, after having increased sharply in 2022-2023, have begun a decline that continues in 2025, making mortgage credit more accessible.

Luxembourg’s economic growth remains positive, with forecasts of +2.0% for 2025, after +1.4% in 2024 and -0.6% in 2023. This economic recovery supports real estate demand, both residential and commercial.

Trends and Perspectives

Price Evolution and Transaction Volume

After the correction phase observed in 2023-2024, the Luxembourg real estate market should experience a period of stabilization followed by a slight recovery in 2025-2026. Prices should increase moderately, at a more sustainable pace than that observed before 2022.

The transaction volume, which fell sharply in 2023 (-72% overall), with -43.4% for apartments under construction and -34.7% for existing apartments in the second quarter of 2023 compared to the same period in 2022, should gradually recover, driven by falling interest rates and the return of buyer confidence.

New Housing Trends

The health crisis and societal changes have modified the expectations of buyers and tenants. There is a growing demand for:

• More spacious housing, with an additional room for teleworking
• Outdoor spaces (balcony, terrace, garden)
• Locations in the periphery or outside cities
• New forms of housing: co-living, common spaces, intergenerational cohabitation

The average size of apartments put up for rent has decreased significantly, from 74 m² in 2010 to 61 m² in 2021, with a strong increase in studio rentals, which represented nearly 30% of rented apartments in 2021, compared to 10% in 2010.

Commercial and Office Real Estate

The office real estate market is also undergoing significant transformations. While demand remains strong, workspaces are being redesigned to adapt to new practices (teleworking, flex office). Companies are looking for more flexible offices that promote employee well-being and meet environmental requirements.

Commercial real estate (retail) faces challenges related to inflation and e-commerce competition, but consumption should return to pre-crisis levels. There is also a development of logistics buildings on the periphery to support online commerce.

Challenges and Opportunities for the Future

Sustainability Issues and Energy Transition

The energy transition and environmental requirements represent both a challenge and an opportunity for the Luxembourg real estate market. New constructions must comply with strict energy standards, while the existing stock requires significant renovations.

This transition to “green growth” influences land use planning, architecture, and construction methods, with an emphasis on low-carbon buildings and sustainable materials.

Accessibility and Affordable Housing

Housing accessibility remains a major challenge for Luxembourg. Despite the recent price correction, housing costs represent a significant portion of household budgets. Tenants in the private market can spend up to 37-40% of their income on rent, well above the 30% threshold generally considered reasonable.

The development of affordable and social housing is therefore a priority, with the objective of neutralizing land costs to allow access to housing for low and middle-income households.

Innovation and Digitalization

Digitalization is also transforming the real estate sector, with the development of new technologies for construction, property management, and marketing. Virtual tours, BIM (Building Information Modeling), and intelligent building management solutions are becoming widespread.

These innovations contribute to improving the efficiency of the sector and meeting consumer expectations in terms of transaction transparency and simplicity.

Conclusion

The Luxembourg real estate market is going through a transition period, after several years of exceptional growth followed by a significant correction. At the beginning of 2025, the signs of stabilization and slight recovery are encouraging, supported by a more favorable economic environment and ambitious public policies.

Challenges remain numerous, particularly in terms of housing accessibility, environmental sustainability, and adaptation to new resident expectations. However, Luxembourg has important assets to face them: a resilient economy, an attractive tax framework, and a political will to solve the housing crisis.

Luxembourg real estate remains a safe value for investors, even if yields have decreased. The structurally high demand, linked to the country’s demographic and economic growth, should continue to support the market in the medium and long term, while promoting the emergence of new forms of housing better adapted to contemporary challenges.