Periods of major market disruption are rare, yet pivotal moments in the career of a commercial real estate (CRE) investor. These inflection points offer unique opportunities to capitalise on pricing dislocations and supply-side contractions that ultimately lay the groundwork for income growth and capital appreciation. Europe is now entering such a phase—one marked by stabilising fundamentals, easing monetary policy, and a recalibration of investor expectations. This report explores the evolving pricing dynamics, supply-side constraints, and strategic implications that are shaping conviction-led investment in European CRE in 2025 and beyond.
Pricing Reset Offers Strategic Entry Point
Following the most aggressive central bank tightening cycle since the 1980s, European real estate markets have undergone a significant repricing with aggregate values down 15-30%, depending on the market and property type. Sales volumes have declined approximately 40% from the 2021 peak of €404 billion, reflecting investor caution amid rising interest rates and macroeconomic uncertainty. However, 2023 marked a turning point: transaction activity bottomed out, and year-over-year price declines began to moderate. In 2024, deal velocity rebounded by 15%, with momentum building across a diverse set of markets—though Germany and France continue to lag. While broad measures of pricing have continued to decline—albeit at a slower pace—or have stabilized near their nadir, prime real estate values have inflected.
Prime assets have led the recent early stages of recovery, posting six consecutive quarters of capital growth. This resilience is underpinned by three key factors: (1) the European Central Bank (ECB) and Bank of England (BoE) are further along in their rate-cutting cycles than the U.S. Federal Reserve, (2) prime yields, which rose in 2023, have since stabilised, creating attractive entry points relative to long-term historical spreads, and (3) prime rental growth has rebounded reflecting strong demand for sustainable stock that fits modern ways of working and living as well as the shortage of development. Logistics stands out as a sector where structural tailwinds are expected to drive income growth well above historical norms, and thus spreads are tighter than historic norms, but are 60 basis points (bps) wider than they were at the peak of the market. According to Cushman & Wakefield’s Fair Value Index, logistics markets across Europe, which were also fastest to reprice, are now the most consistently underpriced. Indeed, the combination of a yield reset and attractive risk premiums, along with improving investor sentiment and broader sources of capital, point to a finite window between the market deterioration of mid-2022 to 2023 and a full-paced recovery which is in the early stages of taking hold. This is represented by Cushman & Wakefield’s TIME Score falling in the “inflection” stage of the investment market cycle.
In other words, the market is currently in transition and offers compelling strategic opportunities.
Structural Tailwinds Reinforce Long-Term Demand
Europe’s CRE market is not just being powered by the cycle, it is being reshaped by enduring structural forces that drive demand for property—demographics, digitalisation, climate adaptation, and geopolitical realignment. The pandemic accelerated the need for resilient and robust supply chains, and recent trade tensions have further reinforced the case for regionalisation of manufacturing and distribution. Simultaneously, increased defense spending and fiscal stimulus are expected to support medium-term growth across the region. Lastly, EU integration continues to provide a stabilising framework, reducing structural risk in emerging markets. This allows the region to provide tremendous diversification across emerging and mature markets that are in close proximity.
These macro shifts are translating into tangible demand for logistics, data centers, life sciences, residential, senior living/home care, healthcare- and infrastructure-related assets. Institutional capital is also flowing into historically “niche” segments driven by these structural forces as well as chronic supply shortages and evolving preferences. As these sectors mature, they offer diversification benefits and long-term growth potential.
Capital is building fast to take advantage of this transition, with year-to-date fundraising trending 16% higher than all of 2024. If this pace is sustained, fundraising will be 130% higher than 2024, due in part to a jump in the average fund size as well as several sizable funds over $1 billion, including Blackstone’s Opportunistic Fund 7, TPG’s Value Added Fund 4 and Starwood’s German Debt Fund II. There’s also a large $963 million French-focused Core Fund raised by ARKEIA. And investment managers are only part of the picture, accounting for 25% of acquisitions through the first half of 2025—another 61% of acquisitions are being driven by institutions, REITs and private investors with core and core-plus strategy mandates growing rapidly.
Supply Contraction Sets the Stage for Recovery
The combination of elevated financing costs, tighter credit availability, rising construction expenses1, and macroeconomic uncertainty has led to a notable pullback in development activity across Europe. New starts have slowed significantly, particularly in the office, logistics and residential sectors.
Under construction volume for European logistics was just approaching 8 million square metres (msm) in 2019 but surged 100% to nearly 16.9 msm by mid-2022 before rapidly dwindling to just over 7 msm as of Q2 2025. For the European office sector, the pipeline of new construction was fairly stable from 2019 through H1 2022, ranging from 16 to 18 msm in any given quarter, with no notable downtrend despite concerns around hybrid work and occupancy (which played out much more anemically for Europe than places such as North America). Only when interest rates started to rise at a rapid clip in 2022 did construction volume start to recede. There has been a consistent quarterly decline since then and now just under 11 msm of construction is underway across the region, despite flight to quality and ESG-friendly assets. Permits for residential construction across the EU also plummeted by 23% from their peak levels through 2024, according to Eurostat. Declines vary significantly, ranging from 50% to 65% in Germany and the Nordic countries, 36% in France, and 11% in the Netherlands. While most have recorded declines in construction, it is noteworthy that there is some net growth in Southern European nations like Portugal (+8%), Spain (+29%) and Greece (+37%).
This supply-side discipline is expected to support rental growth and occupancy stabilisation as demand gradually recovers in 2026 and 2027. In logistics, tightening supply is already contributing to yield compression in select markets. In residential, persistent undersupply is driving rental growth and attracting institutional interest. Office markets remain bifurcated with prime assets in core locations outperforming amid a flight to quality—such as in Barcelona, Brussels, London, Milan and Paris— while non-core assets face rising vacancy and limited leasing momentum.
