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European Investment Atlas

6/26/2025

In a Holding Pattern: Strategic Opportunities Amid Market Transition

The European commercial real estate market remains in a transitional phase. Both the Fair Value Index (FVI) and the TIME Score held steady in Q1 2025, signalling a stabilising environment—one where deterioration has paused, yet a full recovery is still on the horizon. For investors, this presents a compelling window for strategic entry.

Market Cycle: Inflection Point Persists

Over the past year, the TIME score has consistently indicated an inflection stage across all sectors. This phase typically marks the shift from downturn to recovery. Hospitality continues to lead the cycle, while Offices remain slightly behind.

Macroeconomic Headwinds and Resilience

Investor sentiment remains cautious amid ongoing macroeconomic uncertainty. This has led to a broad downgrade in growth expectations, although select market segments continue to show resilience. Importantly, robust risk premiums have helped anchor market stability, reinforcing the relative attractiveness of commercial real estate over risk-free alternatives.

Fair Value Index: Marginal Movement, Strong Undervaluation

The European FVI edged down slightly to 91 in Q1 2025 (from 92 in Q3 2024), primarily due to rising bond yields. However, this was largely offset by resilient risk premiums and recalibrated return expectations. Notably, 82% of tracked markets remain underpriced—highlighting widespread investment opportunities.

Sector-Specific Highlights:

  • Logistics assets remain highly attractive, supported by strong demand and constrained supply.
  • Hospitality occupies the “sweet spot” for investment, benefiting from solid fundamentals and favourable timing.
  • Retail, Residential, and Office sectors have softened modestly but continue to offer strategic potential—particularly for high-quality, sustainable assets.

Strategic Themes and Capital Dynamics

As global dynamics evolve, investors are navigating a more fragmented landscape. Opportunities are emerging in Tier 2 countries, while geopolitical tensions and economic divergence are prompting portfolio de-risking. Key strategic themes— such as supply chain resilience, decarbonisation, and ESG alignment—are increasingly central to investment strategies.

Real estate financing remains favourable in 2025, underpinned by strong lender competition, ample capital, and innovative debt structures. Rising loan-to-value ratios and improved underwriting confidence are contributing to a highly liquid and competitive environment. While some refinancing pressure persists, distress remains limited. This cycle is defined not by capital scarcity, but by selective and strategic deployment.

Outlook: Poised for Rebound

Looking ahead, easing interest rates and moderating inflation are expected to bolster investor confidence. Greater clarity on U.S. policy should further support sentiment in the second half of the year. With underpriced assets, improving financial conditions, and resilient sector fundamentals, European real estate is well-positioned for a potential rebound in H2 2025.

 


 

TIME SCORE

The TIME score offers a streamlined method for illustrating key changes in several crucial indicators, providing investors with valuable tools for assessing and predicting market dynamics.

FAIR VALUE INDEX

The Fair Value Index, a forward-looking tool providing insights into the attractiveness of pricing in Europe's prime office, retail, and logistic property markets. 

Contacts

Sukhdeep-Dhillon-Head of EMEA Forecasting
Sukhdeep Dhillon

Head of EMEA Forecasting
London, United Kingdom


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Guilherme Neves
Guilherme Neves

Senior Research Analyst
London, United Kingdom


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David Gingell

International Partner
London, United Kingdom


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David Hutchings - London
David Hutchings

Head of Investment Strategy for EMEA Capital Markets
London, United Kingdom


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James Chapman
James Chapman

International Partner
London, United Kingdom


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