European real estate market commentary: October 2025
Although transaction volumes remain subdued, real estate markets in Continental Europe are seeing improved sentiment against a resilient economic backdrop – and our valuation framework signals opportunities across segments.
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Economic backdrop
Notable resilience – and US trade pact reduces uncertainty
The Eurozone economy has demonstrated notable resilience in the face of persistent uncertainty over recent months. Quarterly GDP growth slowed from 0.6% in Q1 to 0.1% in Q2, but with annual growth at 1.5%. Recent improvements across a range of economic indicators led to an upgrade in the consensus forecast for 2025 GDP growth, from 0.9% earlier this year to 1.2% as of September.
The recent EU-US trade agreement has eased a degree of uncertainty that had been weighing on corporate borrowing and investment decisions. Under the new framework, a 15% baseline tariff has been established. Whilst higher than the previous 10%, it is less than the previously threatened 30%. However, certain sectors such as steel and aluminium remain subject to tariffs of 50%. Importantly the 15% tariff rate applies to the automotive sector alongside “zero-for-zero” tariff agreements for several products, including aircraft and raw materials.
Fiscal landscape limits policy options; monetary policy remains supportive
With reduced tariff uncertainty, the next focus for markets is likely to be Europe’s evolving fiscal landscape. New defence and infrastructure spending could provide a boost to growth, but even with fiscal rules softened, government debt levels have notably increased following the pandemic. This is limiting the ability of countries to provide large stimulus packages and increasing concerns over debt sustainability. This is particularly evident for France, which has been reflected in elevated government bond yields.
Monetary policy remains supportive, with inflation having remained largely at target level. The ECB maintained the key policy rate at 2.0% for the second consecutive meeting in September, stating that the risks to growth were now more balanced. Following the June strategy review, the ECB had already communicated a measured approach going forward, with less inclination to respond to minor deviations from the 2% target.
Markets now largely expect the ECB’s rate-cutting cycle to have concluded. However, any fiscal loosening could generate upward pressure on inflation, which may prompt consideration of another cut next year.
Labour markets remain tight; business sentiment improving
Eurozone labour markets remain tight with the unemployment rate standing at 6.3% in August, close to July’s record all-time low of 6.2%, though conditions vary among member states. As a result, annualised wage growth was 4.0% in Q2 for the second consecutive quarter. This is likely to support household incomes, while the potential impact on firms’ costs and pricing dynamics may increasingly draw ECB attention.
While key risks and uncertainties for global and European growth remain, economic sentiment has continued to improve over the last quarter, with the composite Eurozone PMI improving in July, August and September driven by positive sentiment in the services sector. Sentiment in the manufacturing sector also improved following the conclusion of the trade agreement.
European real estate market
Sector views: Office
Improving sentiment should bolster business confidence and support growth in occupier demand in the office market. Tight supply, characterised by an ongoing scarcity of modern, Grade A space in prime central business district (CBD) locations, alongside persistently high construction costs and capacity constraints, continue to underpin rental levels. According to JLL, 13 of the 27 major European office markets recorded increases in prime rents over Q3, with 23 showing annual growth.
Sector views: Industrial and logistics
In the industrial and logistics sectors, the prevailing economic conditions are leading occupiers to exercise caution and be more cost-conscious. Prime rents remained largely unchanged again over the quarter with only select markets showing growth, often attributable to a new generation of assets setting new benchmark rents. However, medium to long-term demand remains well supported by structural drivers such as growing e-commerce penetration.
In addition, the geopolitical environment is likely to increase near-shoring activity, albeit slowly and potentially limited to high-value and critical items. There are also expectations that government-led investment on defence and infrastructure will create additional demand for logistics space. Lastly, there is increased obsolescence risk in the sector with an estimated 75% of stock in France being older than older than 10 years (Netherlands ca. 65%, Germany ca. 55%, Source: JLL), with many major occupiers having introduced carbon reduction targets, supporting demand for new and refurbished space going forward.
Sector views: Retail
The retail sector is stabilising, with recent valuation data showing signs of a recovery in certain segments following a decade-long period of adjustment. We remain cautious of ongoing headwinds to consumer confidence and spending, even if real wages continue to grow. The sector will also continue to face pressure related to competition from online retail. Despite these considerations, rental levels for many retail formats have likely troughed and consequently we are more optimistic about prospects for the sector, albeit we remain highly selective. We expect retail parks with a low exposure to fashion as well as convenience formats including supermarkets to be able to provide resilient inflation-linked cashflows.
Investor sentiment improving, but transaction volumes subdued
Turning to capital markets, sentiment surveys such as the September INREV Consensus indicators present a more encouraging picture. Four of the five sub-indicators registered improvement over the quarter. The investment liquidity sub-indicator showed the most significant rebound and financing remained the lead sub-indicator, representing the strongest reading recorded across any sub-indicator since the survey started in March 2023.
This should bode well for investment activity and market liquidity in the coming months. More anecdotally, through our conversations with investors, there is a recurring theme of current and pending demand for European real estate versus the US, considering the lower interest rate environment and geopolitical circumstances.
However, European real estate investment volumes in Q3 remained subdued, with preliminary figures from MSCI RCA indicating approximately €35 billion invested in European real estate, a decline of ca. 25% compared to Q2 2025, making this the slowest quarter since Q3 2023.
Fundraising is recovering as evidenced by data from Preqin, which shows that private equity real estate fundraising as of mid-August was already 15% higher than for the full year of 2024. The fundraising market continues however to demonstrate a clear flight to scale and specialisation, with select large managers successfully securing commitments for new vintages of flagship fund vehicles.
Transaction pricing improving and valuation framework signals opportunities
European real estate pricing saw modest improvements over the past three months in line with more certain financing conditions. According to CBRE’s Monthly Yield Monitor, there was highly selective yield compression, with most changes limited to 10–25 basis points over the last three months.
Owing to the extent of the repricing observed since the spring of 2022, our proprietary market valuation framework continues to signal that immediate opportunities can be found across multiple markets and sectors. Several property types, notably the industrial and logistics segments, have rebased to attractive price points, and are supported by strong structural fundamentals despite the current elevated risk for short-term performance.
Investment outlook
Our views on preferred sectors and portfolio positioning remain largely unchanged from Q2, with a broadly neutral stance across market segments.
Opportunities in industrials and data centres
We continue to favour industrial estates (including outdoor storage facilities), cross-dock warehouses, and urban logistics assets benefitting from positive e-commerce and urbanisation trends. We believe that the recent turmoil around tariffs is likely to lead occupiers to review supply chains and accelerate near-shoring dynamics.
Access to sufficient power, preferably from renewable sources, is also high on occupier’ agendas, creating scope for owners to garner incremental income from ‘electrifying’ facilities through the provision of onsite charging facilities and power generation.
Relatively, cash-on-cash yield generation is also potentially available across the region given favourable yield and debt finance cost spreads that prevail. The strong growth in AI continues to fuel the demand for data centres, a sector that sees strong investor interest. While specialist assets, data centres provide long-term income given their critical role in supporting the digital economy.
Lack of supply creating demand in ‘living’ segments
The lack of supply of residential space across major Western European markets and continuing urbanisation trends are creating opportunities across “living” segments. We have a focus on undersupplied affordable and mid-market rental housing segments. Careful consideration needs to be given to local regulations that are shifting to further protect residential tenants from rent increases.
We also see opportunities in senior housing, student housing in major university locations across the region, as well as parts of the hotel market, with a preference for leased assets providing inflation-linked cashflows or operating hotels where the repositioning, restructuring of operations or completion of stabilisation activities can drive value creation.
Polarisation in office performance to persist
The polarisation in demand and performance in the office sector between “best in class” and “the rest” is expected to persist. Modern assets with good amenity provision in major metropolitan CBDs should continue to perform and prime assets are potentially offering value. Given the limited of supply of modern space, we also see an opportunity to upgrade and refurbish well-located workspaces in supply-constrained major capitals and regional CBDs.
Secondaries and recapitalisation opportunities
Lastly, we believe that direct secondaries and recapitalisations are increasingly attractive strategies, as evolving industry dynamics have created a growing need for both capital solutions and specialist operational expertise, especially in the emerging range of adjacent segments requiring specialist management expertise. At the same time, capital value declines of 20-30%+ have exacerbated balance sheet and asset funding challenges, given that the limited capital raised has been uneven with a focus on a narrow range of strategies.
Profily autorov
Témy