European offices remain highly polarised, with resilient demand and limited supply supporting prime assets. Conversely, secondary buildings face high vacancy, capital expenditure requirements and obsolescence risk. Overall, investment volumes fell by 7% year-on-year in H1 2026, yields edged slightly higher, and listed office companies continued to trade at substantial discounts to NAV. The recovery is likely to remain selective, with a constrained development pipeline supporting rental growth for modern, energy-efficient offices in the strongest locations.
Industrial fundamentals remain broadly balanced, although transaction volumes fell by 18% year-on-year in H1 2026 as geopolitical uncertainty, elevated interest rates and weaker economic growth weighed on investment activity. Occupier consolidation into modern and efficient facilities, together with subdued development activity, is driving greater sector polarization, with the vacancy rate gap between Grade A and average quality stock being as wide as 420bps in Spain, 370bps in France, and 340bps in Germany. The sector retains a moderately positive outlook, but we expect performance to diverge further between best-in-class assets in strategic locations and older facilities that no longer meet occupier requirements.
The European residential sector recorded the strongest transaction momentum among the major property types in H1 2026, with investment volumes rising by 27% year-on-year to a level 10% above the ten-year first-half average. Demand remains supported by migration and declining household sizes, while housing shortages and limited new development have kept institutional multifamily vacancy rates close to 2.5%, on average. These structural imbalances support a positive outlook for the rental market, although higher financing costs and affordability constraints may weigh on valuations.
European hotel fundamentals remained resilient in H1 2026, with investment volumes of approximately EUR 10 billion and RevPAR growth of 4.5%, driven primarily by higher average daily rates. Travel demand continues to support operating performance, but rising labour, energy and borrowing costs could compress margins, particularly for highly leveraged operators with limited pricing power. The strongest opportunities remain in well-located, underinvested assets where refurbishment, operational improvements and branding can enhance performance.
Retail delivered the strongest quarterly unlevered return among the traditional sectors in Q2 2026, supported by improving capital growth, resilient occupier demand and a limited development pipeline. Performance remains highly polarised, with dominant shopping centres, retail parks and food-anchored assets outperforming weaker high-street and secondary schemes. The outlook is moderately positive, but investment selection remains critical, with the strongest prospects among retail parks, discounters and supermarkets in the UK and Germany, as well as leading shopping centres in Southern Europe.
European data centres continue to benefit from strong structural demand, driven by cloud computing, artificial intelligence, and an increasing focus on digital resilience and data sovereignty. Take-up across the primary FLAP-D markets exceeded new supply in the first half of the year and is projected to continue outpacing it, pushing vacancy to a record low of 5.2% by year-end. Against this backdrop, capital is increasingly moving further afield into secondary and tertiary markets in search of available power and land.
Healthcare real estate conditions remained broadly positive in Q2 2026, with investment volumes reaching €7.8 billion in H1, around 60% above the same period last year, and yields compressing modestly. Occupancy has risen above pre-pandemic levels and is expected to improve further amid a widening imbalance between supply and demand. However, the near-term outlook is more mixed, as renewed inflationary pressures and higher borrowing costs may weigh on operator profitability.
European student housing remains attractive, but investment momentum is shifting from the mature UK market towards less institutionalised and undersupplied markets in Continental Europe. Continental Europe overtook the UK in investment volumes in 2025 and retained its lead in H1 2026, while rental growth reached 3.5% compared with 2.8% in the UK. Acute housing shortages, low provision rates and supportive international-student policies underpin the Continental European outlook, while tighter visa rules and affordability pressures present greater challenges in the UK.
Footnotes
For our detailed perspective on the conditions and outlook for each sector, please download the full Europe Real estate sector report.
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