European real estate market faced with uncertainty

Despite stable returns in Q1 2025, including the strongest capital growth since Q2 2022, sentiment towards European real estate has declined for the second consecutive quarter.

INREV

According to INREV's latest Market Insights report, the uncertainty is due to ongoing market caution and a disconnect between performance and investor sentiment. This is further highlighted by the simultaneous contraction of sub-indicators related to new development, investment liquidity, and the overall economy—the first such occurrence since March 2024.
In Q1 2025, the main real estate sectors in Europe experienced positive quarterly returns, with the office sector making a notable recovery (1.11%) after a period of negative returns. Residential and retail led the way (2.03% and 1.99%, respectively), closely followed by student housing and industrial/logistics, both exceeding 1.80%. However, investor sentiment towards retail has cooled, declining by 16% quarter-on-quarter, and office sentiment has turned negative (-10%).
Investor interest in student housing has surged this quarter, surpassing traditional residential with 26% net interest, a significant jump from 14% in March. Residential remains popular, with 25% of participants intending to increase their investment, consistent with its usual level.
However, interest in senior living has dropped sharply, from 13% in March to 0% in June. This difference in sentiment between senior living and student housing could stem from varying national preferences and regulations, but it also underscores the increasing maturity and institutionalization of the student housing market. Unlike student housing, which boasts established platforms and well-defined operating models, the senior living sector is less developed and fragmented across Europe. This lack of standardization currently limits investor confidence.
Germany's real estate market delivered a positive total return of 1.19%, driven mainly by the strong performance of the industrial/logistics sector, which achieved a 2.09% return. Investor sentiment towards Germany has improved significantly since March, with a net 20% of participants now planning to increase their investments, a considerable jump from just 3%.
The investment liquidity sub-indicator experienced the most significant drop, falling from 63.2 in March to 47.4 by mid-year. This is the first time it has slipped into contraction territory since March 2024. Transaction volumes in Q1 2025 were the lowest in a decade for that period, suggesting a slow summer for direct real estate investment in Europe.
Commenting on the results, Iryna Pylypchuk, head of Research and Market Information at INREV, said: "While European real estate has maintained positive performance, market participants remain prudent, behaving on the side of caution. The latest INREV Consensus Indicator highlights growing uncertainty surrounding the trajectory of market recovery, uncovering a lack of consensus as market bifurcation intensifies. Germany's improved outlook is encouraging, as well as the robust performance across Europe's living, industrial and logistics, and retail sectors. The steep decline in direct investment activity is a concern. However, it may reverse easily as soon as economic and occupier market confidence is back up. Investors should keep in mind that Europe is leading the global recovery cycle."