European residential sector sees positive volume trends

Despite ongoing market volatility and geopolitical uncertainty, BNP Paribas REIM's Lighthouse Report H2 2025 signals a recovering European real estate sector. 

BNP Paribas REIM funds

European real estate investment volumes in Q1 2025 saw a 6% year-over-year increase, reaching €45 bn. The residential sector was a key driver, accounting for approximately €9 bn, or 20% of total investment. The office and retail sectors also contributed positively, while logistics and hotels showed signs of slowing down.
While non-traditional sectors are expected to continue their upward trend, core sectors are still likely to attract the most investment. The report advises investors to target sectors with strong demand and limited supply, notably residential, prime offices, and logistics.
Europe has become a more attractive investment destination compared to the US, largely due to US policy uncertainty and a weakening dollar. Europe's real estate recovery has been strong, consistently outperforming the US and Asia-Pacific for the past five quarters.
Residential remains the strongest sector for rental growth, while logistics forecasts have been revised downward due to trade uncertainty. Capital value growth is expected to return, but yield declines will be modest. Occupiers are increasingly prioritizing quality, sustainability, and location, creating a divide between top-tier and secondary assets. Investors should prioritize sectors with high demand and limited supply.
Historically, healthcare, residential, and logistics have proven to be the most resilient real estate sectors during economic downturns, while offices have struggled, especially in high-vacancy locations. Going forward, demographic shifts and fundamental needs make healthcare a promising sector for decoupling from economic cycles, highlighting the importance of long-term leases and societal benefits for portfolio resilience.
Despite global disruptions, private equity real estate has shown resilience, with European real estate averaging 5.5% annual returns over the past decade. Diversification across sectors like industrial, residential, healthcare, and hospitality will be key to maintaining portfolio robustness against unforeseen events.
Laurent Ternisien, deputy global head for BNP Paribas REIM, commented: "Even though there is still some uncertainty and investors are being cautious, confidence in the resilience of European real estate is strong. The market has entered a recovery cycle with most of the repricing done, an improvement of rental fundamentals, and the rise of new opportunities. As usual, selectivity will be key for investors to manage strong performance. They will have to rely on asset quality and location, operational expertise, and alignment with long-term trends."