Following a period of cautious optimism in the first half of the year, the European real estate markets entered Q4 2025 on firmer footing. Lower inflation, easing monetary policy, and early signs of yield compression have collectively improved sentiment across most asset classes.
However, the recovery remains uneven – with prime assets outperforming while secondary locations still face valuation pressure.
Office Market: Stabilization in Core Cities
The European office market is showing early signs of stabilization after nearly three years of repricing. Modest rental growth in Q3 continued across major gateways, with prime yields compressing by 10-20 basis points in cities such as London, Paris, and Madrid.
Occupier demand is increasingly centered on Grade A ESG-compliant and flexible space, while older stock faces obsolescence and further value erosion.
Outlook:
Investors will remain highly selective, focusing on core CBD markets with limited new supply.
Refurbishment and repositioning opportunities, particularly for energy-inefficient assets, will attract value-add capital ahead of tightening sustainability regulations in 2026-2027.
Industrial & Logistics: Supply Constraints Keep Market Tight
The industrial and logistics sector continues to benefit from strong fundamentals such as reshoring, automation, and e-commerce growth. Despite a slight easing in rental growth in Q3, yields have plateaued at record lows. Vacancy rates in Netherlands, Germany, and Poland remain under 4%.
Outlook:
Tight supply and construction delays will support pricing into 2026.
Southern European logistics corridors (Spain, Portugal, Italy) will attract growing institutional capital.
Residential: Structural Demand Keeps Momentum Strong
Residential real estate remains the most resilient sector, supported by demographic trends and housing undersupply. Rent growth continues to outpace inflation in cities like Lisbon, Dublin, and Berlin.
Outlook:
Affordability pressures and limited supply will sustain upward rental trends.
Institutional investors are increasing exposure to build-to-rent and affordable housing, supported by public incentives.
Hospitality: Tourism Boost Drives Hotel Performance
Hotels recorded another strong quarter, with average daily rates in Southern Europe exceeding 2019 levels. Spain, Italy, and Portugal benefited from record tourism inflows.
Outlook:
Luxury and resort assets will lead performance.
Investors are favouring platform and JV models to manage operational volatility.
Markets such as Germany and the Nordics are regaining investor interest.
Retail: Repricing Phase Nears Completion
Retail’s recovery gained pace, driven by improving consumer sentiment. Retail parks and destination shopping centres are outperforming high streets.
Outlook:
Selective acquisition opportunities are emerging for institutional investors.
Mixed-use regeneration projects are attracting capital.
Lower borrowing costs should support momentum into early 2026.
Data Centres: Europe’s Star Performer
Data centres remain the best-performing real estate segment, with AI-driven demand intensifying supply constraints in Frankfurt, London, and Paris. Southern Europe is benefiting from renewable energy integration and uncongested power grids.
Outlook:
Land and power availability will shape growth.
Expect sustained double-digit rental growth in constrained markets.
Expansion into secondary hubs like Madrid, Milan, and Warsaw.
Healthcare: Defensive Strength Persists
Healthcare real estate saw steady capital inflows into care homes and clinics. The U.K., Denmark, and Germany led transactional activity.
Outlook:
Stable yields and demographic tailwinds support strong institutional appetite.
Rising operational costs may accelerate consolidation and platform strategies.
Student Housing: Cross-Border Demand Expands
Student housing remains an outperformer within living sectors, buoyed by strong international mobility and record enrolment levels.
Outlook:
Limited stock and growing student flows will sustain rent growth.
Mid-sized university cities in continental Europe are attracting active development financing.
Overall Market Outlook: Selective Recovery Through 2026
The European real estate market is transitioning toward a selective recovery phase. Stabilizing yields, lower interest rates, and sustained occupier demand suggest that the market correction is largely complete.
However, asset selection, ESG compliance, and disciplined capital allocation will remain critical as Europe navigates a slow-growth environment.
Contact our team at Bravura for more information and to explore opportunities in the European real estate market.