Investor sentiment in European real estate at all-time low

Investor confidence in the European real estate market has sharply declined, with the June INREV Consensus Indicator hitting a record low of 41.0, down from 54.7 last quarter.

Iryna Pylypchuk

This drastic fall, reflected across all five sub-indicators, is primarily attributed to persistent geopolitical instability and economic headwinds, severely impacting the near-term outlook.

Despite the gloomy sentiment, the real estate sector itself demonstrated steady positive performance in Q1 2026. Both fund-level (1.30%) and asset-level (1.67%) total returns remained positive, extending streaks of nine and eight consecutive quarters, respectively. This performance was largely driven by capital growth (0.79% for funds, 0.64% for assets), suggesting European real estate assets are nearing the end of their repricing cycle.

However, investors are recalibrating their short-term expectations amidst high overall risk. The economic sub-indicator saw the most significant drop, falling 18.3 points to a historic low of 24.0, while investment liquidity sentiment re-entered contraction at 36.1. Geopolitical risks, volatile energy prices, and trade tensions are cited as key factors increasing risk and lowering market resilience across all asset classes, including real estate. Rising inflation is also noted as a net negative impact.

Sector-wise, residential properties continued to be the strongest performer, yielding 2.85% in total returns and 2.04% in capital growth. Retail assets, despite a slight moderation, also remained positive at 1.47%.

Lending conditions, while broadly stable with 89% of respondents reporting no change in terms, showed a clear tightening. The financing sub-indicator recorded its largest quarterly decline, dropping from 70.4 to 55.8, indicating a significant shift away from the highly accommodative conditions of late 2025 and early 2026. The availability of finance plummeted from 46% to 17%. Transaction volumes also saw a substantial drop, from €80.3 bn in Q4 2025 to €41.3 bn in Q1 2026, a decline beyond typical seasonal patterns.

Geographically, all six main European markets delivered positive total returns, though capital values slightly decreased in the UK and France. Italy emerged as the new investor favourite, with 12.9% net positive sentiment, surpassing Spain (9.4%). Conversely, the UK (-6.2%) and the Netherlands (-3.1%) entered negative sentiment territory for the first time in several quarters, while France remained the weakest at -15.6%.

Iryna Pylypchuk, director of Research at INREV, commented: “We’re seeing a major divergence between market performance and short-term investment outlook. The destabilising effects of geopolitics, heightened risks, and low resilience thresholds are clearly weighing heavily on short-term investment confidence. But the reality is that market performance continues unabated, with the notable signs of capital growth driving an uplift in total returns in most European markets. The underlying fundamentals for European real estate are sound, and the latest reading is not an indicator of the downcycle but a pause of caution.”