European CRE total returns accelerate into 2026

Market response: Real estate

March 3, 2026

Rich Hill

Global Head of Real Estate Research & Strategy

European real estate fund returns accelerated into year-end 2025, with selectivity remaining a key driver of performance. European ODCE indices have now posted seven consecutive quarters of positive returns and continue to outperform their U.S. peers, where dispersion between top- and bottom-quartile funds has been more pronounced. In addition, focused residential and retail strategies in Europe are outperforming multisector peers, which are likely to have greater exposure to the still-lagging office sector.

Open-ended core fund returns accelerate

Driven by higher capital returns, the European ODCE index posted net cash returns of +1.12% (local currency) in 4Q25, its seventh consecutive positive quarter. Returns accelerated from +0.83% in 3Q25 as capital returns improved to +0.37%. For 2025 as a whole, the index returned +3.7%, supported primarily by income (+3.1%) and modestly positive capital returns (+0.6%).

In the U.S., the ODCE index posted a +0.7% net return in 4Q25, driven by income (+0.79%) and slightly offset by negative capital returns (-0.1%). Full-year net returns reached +2.9%, with income (+3.2%) outweighing softer capital performance (-0.3%). Historically, the U.S. ODCE index has outperformed Europe in roughly two-thirds of quarters since 3Q11, with annualized returns of +6.4% versus +3.4%. However, this trend has reversed since early 2023, with Europe outperforming in nine of the past twelve quarters.

The recent outperformance of Europe is consistent with our view that the Eurozone is benefitting from an improving economic outlook and lower sovereign debt yields, making leverage more accretive even as cap rates are tighter. Indeed, as of 3Q25, Europe’s unlevered asset-level total returns across all property and strategy types stood at +6.8% over the trailing four quarters, compared to +4.9% for the U.S. as of 4Q25. This is in line with forecasts of 6–7% in Europe versus 5% in the U.S. for 2025.

The other factor at play: Fund performance dispersion

Dispersion in returns across funds remains an important narrative for investors. Over the trailing 1-year period, the median net return for European ODCE funds was +4.4%, with the upper quartile at +5.9% and the bottom quartile at +2.7%. By comparison, the top quartile of U.S. ODCE funds posted 1-year annualized gross total returns of +5.8% vs 4.9% for the 2nd quartile, ~4% for the 3rd quartile, and -0.2% for the bottom quartile. In other words, the top U.S. funds are outperforming in line with Europe, but the bottom funds are underperforming their European peers.

Focused strategies continue to outperform diversified

The broader INREV All-Fund Index delivered a stronger +1.2% total return, supported by income (+1.16%) and capital growth (+0.09%). This is consistent with history, where the All-Fund index has outperformed ODCE in nearly 74% of quarters since 3Q11. A driver of this outperformance continues to be focused residential (+1.8%) and retail (+1.6%) strategies posting stronger results than multi-sector funds (+1.1% total returns). Additionally, on a trailing 4-quarter basis, all focused strategies, except office, meaningfully outperformed their multisector peers.

Bottom line

The momentum behind European core real estate is now firmly rooted in fundamentals: an improving macro backdrop, stronger asset-level performance, and outperformance in focused sectors such as residential and retail. At the same time, widening dispersion across funds, especially within the U.S. ODCE universe, underscores how much manager and strategy selection are shaping investor returns. Taken together, the data point to a market where fundamentals, focus, and manager selection, and not geography alone, are emerging as the primary drivers of outperformance.

Real estate

Disclosure

Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. 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. Commercial real estate (CRE) investments carry several inherent risks, including those related to the economy, interest rates, and tenant behavior. These risks can impact property values, rental income, and overall investment returns.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and 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.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.