Debt capital fuels European real estate recovery

The European real estate market is in a broadening recovery, driven by easing credit conditions, improved liquidity, and clearer macroeconomic signals. 

DavId Gingell

In its latest European Investment Atlas, Cushman & Wakefield highlights that this environment presents strategic opportunities for investors employing disciplined strategies.
The firm's TIME Score, a cyclical positioning indicator, rose to 3.2 in Q3 from 3.0 in Q1, signalling a market turning point and a widening recovery across sectors. Logistics, retail, and hospitality are currently in an "investment sweet spot" due to robust operating metrics and strengthening demand. Prime ESG-compliant offices are maintaining rents and absorption, while secondary office spaces face ongoing challenges.
Cushman & Wakefield's Fair Value Index indicates that 78% of prime office, retail, and logistics markets across Europe are currently underpriced, with no markets considered fully priced. This valuation dispersion points to abundant, albeit selective, investment opportunities. Logistics stands out as the leading sector for opportunities, supported by strong fundamentals. Geographically, Germany remains underpriced across all its markets and sectors.
The recovery is primarily powered by debt capital, as lenders re-engage, providing refinancing and restructuring options to boost liquidity, gain market share, and establish new clearing prices. Increased competition is leading to tighter margins across various asset classes and risk profiles, while more flexible financing structures enable experienced sponsors to secure capital and expedite deals. The five-year SONIA is significantly below Q3 2024 levels, and EURIBOR has stabilised, making debt more attractive for most non-trophy assets.
David Gingell, Co-Head of EMEA Debt Advisory at Cushman & Wakefield, explained: “Debt capital is leading the recovery cycle by 12 to 18 months, with lenders intensifying competition, compressing margins and driving liquidity, positioning debt as the key enabler of European real estate transactions.” 
David Hutchings, Head of Investment Strategy, EMEA Capital Markets at Cushman & Wakefield, added: “The recovery is underway, and investors are adjusting strategies as confidence returns. Fundraising is rebounding, with managers pitching secure-income mandates and looking to increase their ability to be flexible through diversified multi-sector strategies. Core capital is cautiously returning, focused on stock and location quality, but with pricing discipline. This sentiment-led upswing is expected to strengthen through 2026, but with buyers remaining price-sensitive if yields compress too quickly.”
With narrowing differences between buyer and seller expectations (bid-ask spreads) and better market liquidity, the volume of real estate transactions is expected to increase. Cushman & Wakefield predicts that investors will achieve better returns by being selective and prioritising quality. Their focus will likely be on stable core income, diverse investment approaches, and premium properties that meet ESG standards. Additionally, investors will need to remain adaptable to capitalise on emerging opportunities across different sectors and regions.