Real estate markets offer opportunity amidst uncertainty

Following a significant market correction, real estate in Europe, the UK, and APAC is now considered fairly valued, according to M&G Real Estate’s Global Real Estate Outlook 2025.

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In response to global market changes since April 2025, investors are looking to diversify their portfolios by increasing real estate holdings. This strategy aims to mitigate risk by tapping into real estate's cash flow potential and diversifying beyond traditional assets like stocks and bonds. 
A recovery in asset values is expected, although the pace may be gradual. Strong underlying market fundamentals, including limited new development, will support income growth. 
Reallocating investments away from the US and towards growing economies in Asia-Pacific or stable European markets is also being considered.
While some sectors are sensitive to economic fluctuations, others, like residential and data centres, are more stable. Currently, demand outstrips supply in many markets, with low vacancy rates and resilient demand for quality properties. Low tenant default rates indicate market stability, suggesting significant rental declines are unlikely. Even with potential demand softening, limited new supply could bolster rental growth prospects. Continued rental growth is expected across most markets, and any vacancy increases should be short-lived. Sectors with strong structural tailwinds, such as residential and student housing, are poised for continued growth regardless of the broader economic environment.
Lower debt costs are encouraging leveraged investment, particularly in continental Europe. Anticipated interest rate cuts, such as the ECB's, could further boost prices. 
Living sectors are projected to offer both stable returns during economic fluctuations and long-term growth. This is driven by structural undersupply of housing, affordability challenges, and evolving household trends in Europe and APAC, particularly in growing urban centres. Elevated borrowing costs and economic uncertainty encourage renting over buying, supporting rental demand. PBSA benefits as well, as students stay in education during economic downturns. Continued international student mobility, potentially shifting away from the US, further boosts PBSA demand in Europe and APAC.
While logistics and industrial sectors benefit from structural tailwinds, trade disruptions pose a threat to export-focused markets. Evolving supply chains may shift demand, though stockpiling and diversification could support warehouse demand. Retail opportunities are limited to prime locations, but the sector remains vulnerable to trade disruptions and consumer spending pressures. The office sector, especially outside the US, is showing resilience. Repositioning older offices presents a value-add opportunity, and prime office space is outperforming due to limited supply and occupier preferences.
The data centre sector's boom continues, driven by digitalization, AI, and data growth, making it increasingly resilient to economic cycles. The market is projected to grow 15% annually, but supply is constrained by limited power access. Growing data sovereignty needs will further accelerate demand for localized infrastructure, particularly in Europe and APAC. Despite challenges like power, ESG, and technological obsolescence, the sector offers the potential for strong medium-term returns for specialized investors.