After weathering one of the most dramatic interest rate hiking cycles in history, the CRE markets are showing clear signs of a turning point.
Despite the one-two punch of higher tariff policy and broader uncertainty emanating from the U.S., the European economy has remained resilient in 2025 with expectations for improvement in real growth in both 2026 and 2027. This economic stability has been mirrored in the property markets, particularly in prime segments, where robust demand and a slowdown in new construction are signaling early stages of the next expansionary cycle. Additionally, the capital markets cycle, which we described as having troughed, is providing an attractive entry point for investors.
These dynamics are driving a rebound in debt market liquidity and capital raising, setting the stage for increased activity in the coming quarters and year ahead. Perhaps the most forward-looking signal of recovery is the surge in recent fundraising activity. Both private and public CRE investors are mobilizing capital at scale, with improving equity and debt fund flows pointing to renewed conviction in the sector’s long-term value. This wave of capital formation suggests investors are increasingly willing to look beyond any further potential near-term volatility and strategically position their portfolios to capture both solid income growth and upside opportunities as the cycle turns.
Private Capital Leading the Charge
Efforts by large private investment managers to raise capital for investment in European CRE are gaining traction in 2025. Year-to-date fund closings have totaled €20.0 billion through August, better than the total for 2024 (€18.6). If fundraising continues at this pace, the year-end tally for 2025 would be €30.0 billion, up 64% from 2024, marking a clear reversal from declines in fundraising recorded in 2023 and 2024, and the first year-over-year increase since 2021.
While aggregate fundraising levels paint a promising picture for future capital deployment, digging further into fund-level details offers even further evidence of the traction building for this new cycle. Take for example Blackstone Real Estate Partners Europe VII, AG Europe Realty Fund IV and Starwood European Real Estate Debt Finance II1, boasting fund sizes of $10.6 billion, $2.5 billion2 and $1.8 billion, respectively. The Blackstone fund is the largest ever raised in Europe, and the AG fund is the largest in the firm’s history for the region as well. Three additional funds—Silver Avenir ($963 billion), King Street Real Estate Special Situations (Europe) Fund II ($941 billion) and AREIM DC Fund ($923 billion)—have helped to push the average fund size to $922 million so far in 2025. The largest average fund size until this year was less than half this value—recorded in 2014 at $438 million.
The sentiment expressed by Blackstone in its press release echoes that of this very series [Tide is Turning], and what has been revealed quantitatively in Cushman & Wakefield’s TIME Score, published in the latest Investment Atlas. That is, there is currently a compelling window for strategic entry into the market. James Seppala, Head of European Real Estate, Blackstone, commented:
“We are extremely proud to have raised Europe’s largest real estate drawdown fund ever during what has been a period of exceptional dislocation in the industry, particularly in Europe. The real estate recovery is coming into view and we are grateful that our limited partners have entrusted us with substantial capital to capture opportunities through our time-tested, high conviction investment process.”
Product Diversity in Focus
The mix of property types being targeted by recently closed funds offers a blueprint for where institutional conviction is strongest and where the next wave of CRE investment is likely to concentrate. In Europe, diversified strategies have notably risen in 2025: 80% of all fundraising so far this year is for funds with a main target of “diversified property” rather than a specific property type. This is up from the low 60% range in 2023 and 2024 and from the low 50% range in 2021 and 2022.
The growth of diversified funds reflects investor demand for core income in good property regardless of sector. Nonetheless, among diversified funds, though, the usual suspects (logistics, residential, multifamily) are rising while office declined. In other words, among the 80% of dollars raised in 2025 in diversified funds, 64% include logistics and 78% include residential as sectors that are being targeted. (So far this year, only 19% of diversified funds include office investments—a historic low likely influenced by a few large funds dominating capital formation, creating both an anomaly and a potential side effect.3)
Infrastructure, Data Centers and ESG
The story of CRE fundraising in 2025 isn’t limited to equity strategies alone. In parallel, capital flows into infrastructure and digital infrastructure funds have surged, underscoring a more diversified and opportunistic approach to CRE investment. The European Union continues to fund various projects through a number of channels: European Investment Bank/European Investment Fund, Connecting Europe Facility, Cohesion Fund, European Regional Development Fund, Invest EU Programme, and the European Defence Fund (which includes transport infrastructure upgrades). Indications are that there is more to come: the European Commission released an aggressive €2 trillion proposal for its 2028-2034 budget under the Multiannual Financial Framework, including significant consolidation of and greater funding for digital initiatives. Germany, similarly, created a €500 billion infrastructure fund to invest in energy, transportation and other digital infrastructure. At the same time, European investors remain acutely focused on ESG credentials—more so than any other region. In the latest Hodes Weill/Cornell survey, 74% of European investors report CRE investment is tied to ESG policy and implementation. This is further evidenced by Germany’s focus on carbon neutrality by 2045 in its new public infrastructure fund. It’s not all public money either—private investments announced targeting infrastructure range from Macquarie’s €3.5 billion European Infrastructure Debt Fund, Schroder’s €2 billion Junior Infrastructure Debt Fund III (JULIE III), L&G’s €600 million Digital Infrastructure Fund (with another round expected to close later this year) to global funds like EQT’s Infrastructure VI (“the Fund”).
In March 2025, the European Investment Fund (EIF) announced a €150 million investment alongside CDP Equity, who is investing €50 million, into data centers across the region via PIMCO’s European Data Center Opportunity Fund, which benefits from the region’s public network of capital via the InvestEU Programme (which is guaranteeing €86 million of the joint investment). PIMCO’s European Data Center Opportunity Fund had intended to conclude funding in May 2025 but extended the deadline to October 2025 and now expects fundraising to surpass €1.5 to €2 billion (its original target was less than half this amount, at €750 million). As mentioned above, the €887 million fund of AREIM DC points to large scale mobilization of capital focused on data centers. Private debt sources are also tapping into the market, with EcoDataCenter (owned by AREIM) announcing €600 million to finance data centers in Sweden, partly financed by Deutsche Bank Private Credit and Infrastructure, perhaps a harbinger of more Nordic investment given the subregion’s resource-rich landscape and naturally cool environment. PGIM’s $2 billion Global Data Center Fund, amongst others, only adds to the growing depth of capital that will support Europe’s future digital infrastructure.
REITs and Institutions are Reengaging with Capital Markets
Both REITs and institutional capital are also reengaging in 2025 in Europe. Part of strong fundraising for managed funds mentioned above includes mandates for pension, sovereign wealth and other institutional investors placing capital toward the built environment in Europe with the intent to diversify property types or geographic breadth. Still, allocations among institutional investors remain near all-time highs (10.7% for 2025 according to Hodes Weill/Cornell), and Cushman & Wakefield is tracking €57.4 billion of core capital raised by Q2 2025 (targeting European real estate), up from €43.1 billion in Q1 2025, with direct investment strategies still accounting for a large share.
European REITs are entering a recovery phase, supported by stabilizing macro conditions, easing capital costs and sector-specific tailwinds. After underperforming in 2024 due to political risk and high leverage, they are now trading at 25–30% discounts to NAV—far deeper than the 5–10% seen in the U.S.—making them attractive M&A targets. Private equity is capitalizing on this valuation gap, driving consolidation especially in logistics, data centers, multifamily housing and self-storage.
At the same time, REITs are improving their balance sheets. According to Nareit, European property companies raised €8.7 billion by mid-2025, reflecting strong investor support for refinancing and growth. Having relied heavily on debt during the low-rate era, many REITs were forced to deleverage after 2022 rate hikes. While debt-to-asset ratios have improved by about five percentage points, they remain higher than in the U.S., underscoring the importance of continued balance sheet optimization.
And, to top all of these trends off, the European Central Bank released its latest bank lending surveys which show a near-tipping point for credit easing and the first rise in loan demand in recent years. Bayes Business School 2025 CRE Lending Report also reports growing debt issuance across key lender types, more competitive pricing and tighter LTVs (especially for top tier properties).
The Big Picture
The previous edition of our Tide is Turning series highlighted many of the key trends emerging in commercial real estate markets, offering investors reasons to cautiously increase their exposure to this asset class in 2025. At the forefront is the generational reset in property sales pricing that increasingly appears to be in the rearview. Additionally, even most Class A buildings are trading below replacement costs across property types, providing a buffer against supply-side risks.
However, the recent pick up in equity and debt fundraising by both private and public CRE investors may be the most important signal yet that the sector is approaching an upswing. This trend serves as a leading indicator of rising investment volume, reflecting growing confidence among capital sources with multi-asset capabilities. It suggests they are looking beyond potential short-term challenges to strategically position portfolios for long-term growth.
1 In the absence of a fund-specific press release, fund values are sourced from Preqin.
2 Angelo Gordon raised $2.27 billion of capital commitments, supplemented by an additional $214 million in co-investment capital for its European real estate strategy. Excluding the co-investment, this is 50% higher than the predecessor fund.
3 The only major fund that included office as a subtype of a diversified strategy was the AG Europe Realty Fund IV.
