European real estate registers strong tenant demand

European real estate is entering a new phase, diverging from global trends due to strong tenant demand and the stabilising effect of the euro, according to LaSalle's ISA Outlook 2026.

LaSalle's ISA Outlook 2026

Despite global economic shifts, Europe, particularly its luxury retail and prime office markets, is seeing robust demand. Rents are rising faster than inflation, especially in top-tier locations like Paris and London.
The euro's stability has shielded continental European real estate from geopolitical risks and localised uncertainties. The European Central Bank's swift interest rate cuts have also supported property valuations.
UK real estate is showing its highest expected returns in 11 years, particularly in London and other cities with strong "Human Capital" scores and long-term secure income.
Population decline in many European city regions means future growth will be concentrated in a select few "winning" cities. Niche sectors like purpose-built student accommodation and hotels are expected to thrive by attracting demand from other regions.
The traditional "beds and sheds" (residential and industrial) focus is shifting. Logistics vacancy is rising in some markets, while retail vacancy is declining, suggesting a more nuanced approach to property types is needed for investment. Industrial, especially multi-tenant, still offers good risk-return.
In residential, specific, high-demand niches like student accommodation and flexible living in Spain and UK single-family rented housing schemes are recommended, navigating complex regulations that impact rental growth for new units.
Dan Mahoney, head of European Research and Strategy at LaSalle, said: “The region stands out for its ability to balance global portfolios and offer attractive risk returns across every property type, meaning that single sector strategies may no longer be as attractive relative to balanced strategies. There are submarkets, subtypes, and assets already benefiting from a combination of inelastic supply and demand, plus reversion potential – among them super-prime offices and luxury high-street retail – and these continue to have strong momentum.”
Brian Klinksiek, global head of Research and Strategy at LaSalle, added: “Despite a turbulent 2025 filled with trade policy uncertainty and fallout from global conflicts, European real estate markets remain resilient. The repricing of assets means that valuations are lining up with transacted prices, occupational fundamentals are set to strengthen due to collapsing new supply, and debt capital is readily available for a large swathe of the real estate opportunity set. These characteristics underpin the flexibility of global real estate markets, demonstrating that the asset class remains a significant contender for investors seeking resilience against macroeconomic volatility.”