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Europe Real Estate Sector Report

Fall 2025

October 2, 2025
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Sector conditions and outlook
Key:
Improving
Neutral
Deteriorating
Positive
Moderately positive
Neutral
Moderately negative
Negative
Office

The European office market showed tentative signs of stabilisation in the first half of 2025, with modest rental growth and the first yield compression after nearly three years of outward shifts. However, investor sentiment remains subdued, with demand polarised in favour of prime central business district (CBD) assets and away from older, peripheral stock. Investors should remain highly selective, targeting well- located, prime assets with resilient occupier demand and limited supply, such as the City of London, central Paris, and Madrid CBD.

Current conditions:
Neutral
Outlook:
Neutral
Industrial/logistics

Industrial property continues to benefit from strong structural drivers such as e-commerce, automation, and fiscal spending, supporting resilient capital flows and stable occupier demand. While rental growth has moderated and vacancy edged higher (predominantly driven by older stock), yields compressed further, and development pipelines remain constrained, pointing to sustained medium-term strength and diminishing supply risks.

Current conditions:
Improving
Outlook:
Moderately positive
Residential

The residential sector remains one of the most preferred asset classes by investors, underpinned by solid rental growth and early signs of yield compression in core markets. The sector has entered a gradual recovery, with supply-demand imbalance likely to widen further in the next years. Indeed, while housing formation and urbanisation trends point to positive demand, on the supply side, we expect housing delivery growth to slow further, constrained by high construction costs, limited availability of urban land, and tighter regulations.

Current conditions:
Improving
Outlook:
Moderately positive
Hotel

Hotel performance remained positive, driven by resilient leisure demand and ADR growth, particularly in Southern Europe. However, corporate travel demand continued to be subdued as businesses have yet to return to pre-pandemic travel patterns. Transaction volumes remained above trend, supported by large luxury deals in Southern Europe and renewed interest in Germany and the Netherlands.

Current conditions:
Neutral
Outlook:
Neutral
Retail

European retail investment accelerated, aided by stabilising fundamentals, increasing lot sizes, and renewed investor confidence after years of sector rationalisation. Indeed, retail sales, footfall, and vacancy trends point to a sector on a more sustainable recovery path, with retail parks and shopping centres on firmer ground, whereas high street retail remains in a comparatively weaker position. Going forward, the combination of low inflation, declining borrowing costs, and record-low unemployment levels should provide further momentum to consumer confidence and retail spending.

Current conditions:
Neutral
Outlook:
Neutral
Data centres

We regard data centres as Europe’s best-performing property type, driven by a third consecutive year of demand surpassing supply in 2025. While development bottlenecks persist in core hubs, secondary and emerging markets continue to attract investment. The Nordics and Southern Europe could be the primary beneficiaries of this trend, amid uncongested grids and shorter connection times.

Current conditions:
Improving
Outlook:
Positive
Healthcare

Healthcare real estate saw momentum improving significantly, with transaction activity surpassing long-term averages and capital values improving for a third straight quarter. Care operators reported a more favourable environment, primarily due to normalising debt market, positive price effect, and rising occupancy above pre-pandemic levels. Investment was led by care homes and clinics, with the United Kingdom delivering its strongest first half in over a decade.

Current conditions:
Neutral
Outlook:
Neutral
Student housing

Student housing continues to attract significant investor interest, though volumes fell slightly due to a slowdown in the U.K. Continental Europe gained momentum, with record inflows into France, Denmark, and Spain, reflecting strong international student demand and favourable economic outlook, particularly for Spain.

Current conditions:
Neutral
Outlook:
Moderately positive

Footnotes

Outlook refers to the next 12 months

For our detailed perspective on the conditions and outlook for each sector, please download the full Europe Real estate sector report.
Real estate
Disclosures

For Public Distribution in the United States. For Institutional, Professional, Qualified, and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.

Risk considerations

Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.

Important Information

This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account.

Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided. All figures shown in this document are in U.S. dollars unless otherwise noted.

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections, and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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MM12006-07 | 10/2025 | 4840396-102026