Interest rate uncertainty dampens European CRE investment

Investment activity in European commercial real estate slowed in the first quarter of 2026, according to MSCI’s latest Europe Capital Trends report.

CBD Office Volume Change by City - MSCI

Transaction volumes totalled €47.3 bn between January and March, down 10% year-on-year and sharply lower than the €90 bn recorded in Q4 2025.

Concerns over the trajectory of interest rates led many buyers to pause deals, with limited pricing pressure reducing the incentive to transact. The quarter marked the weakest level of acquisitions by global institutions since 2010, while major European investors were net sellers.

Sector Trends

Senior housing was the only sector to buck the slowdown, posting record investment levels since MSCI began tracking in 2007. Consolidation, including Aedifica’s acquisition of Cofinimmo, boosted volumes.

Offices remain the largest sector, with aggregate volumes up 24% year-on-year. Momentum returned to CBD markets in London, Paris, and Berlin, while Madrid and Barcelona saw volumes above long-term averages. Limited new development is driving rental growth for prime assets.

Country Highlights

UK & Ireland: UK volumes fell 7% to €12.7 bn, though London remained Europe’s top destination (+3% YoY). Ireland dropped 37% to €573 mln, with Dublin sliding to 17th place.

Germany: Volumes declined 30% to €8.0 bn. Berlin fell to seventh place after a 56% drop. Non-European investors recorded their lowest activity since 2009.

France: Investments totalled €4.9 bn, down 24% YoY. Paris mirrored this decline, while suburban office values have fallen 40% since 2020.

Netherlands: An outlier, volumes surged 77% to €4.2 bn, driven by Antin Infrastructure Partners’ purchase of DWS’s NorthC Datacenters portfolio. Amsterdam rose to third place with €1.7 bn in deals.

Nordics: Sweden, Norway, and Finland each grew ~15% YoY, while Denmark saw a 55% decline.

Tom Leahy, head of EMEA Real Assets Research at MSCI, commented: “Europe’s real estate market has become highly sensitive to changes in interest rates. The Iran conflict has altered expectations for lower interest rates in the U.K. and put higher borrowing costs on the agenda in the euro zone. It’s a notable shift from the fourth quarter last year, when there appeared to be strong momentum for a sustained recovery in real estate investment volumes.

Many of the ingredients that contributed to the strong end of 2025 for European real estate are still present. Capital values have stabilised, returns are back in positive territory, and occupier markets have held up relatively well.

However, property remains vulnerable to the potential impact from external shocks, especially those which muddy the trajectory for interest rates. The key for investors will be how they navigate this new cycle, assessing where performance could depend on asset selection and operational performance rather than sector allocation.”