Return to optimism for European real estate markets

According to Knight Frank's 2026 European Outlook, optimism is gradually returning to Europe's real estate markets, with improving liquidity and resilient prime residential sectors. 

Stockholm cityscape

While recovery is uneven, global capital is increasingly focusing on European commercial hubs, according to the global real estate consultancy.
In the residential sector, Europe's housing markets are showing signs of revival, with eight European cities ranking in the top ten of Knight Frank’s Global House Price Index. Spain and Portugal lead in residential demand, and Stockholm, Madrid, Lisbon, and Dublin are forecasted to see strong prime residential growth. Europe is also a top destination for over 100,000 high-net-worth individuals expected to relocate in 2025, attracted by competitive tax and lifestyle propositions in Southern Europe.
Commercially, Europe remains attractive to international investors due to its stability and transparency. Cross-border investment in European offices surged by 46% year-on-year in the first nine months of 2025, with transactions over €200 million increasing by 20%. Prime office rents are rising across Europe, with significant increases in Munich (€55/m2 per month) and Paris CBD (€1,200/m2 per year). European commercial real estate has delivered a 6.37% compound annual growth over the last decade, outperforming Eurozone government bonds (1.5%) and REITs (3.07%).
However, policy and regulation continue to influence market outcomes. While some regulations, like London's stamp duty changes and Barcelona's rental reforms, have slowed activity by 20% and 40%, respectively, stricter zoning in Alpine markets has created scarcity premiums. The broader regulatory environment is expected to tighten further due to fiscal pressures, ESG commitments, and upcoming EU holiday rental rules.
Anthony Duggan, chair - Knight Frank Europe, commented: “As we look ahead to 2026, there has been much debate about whether the continent is entering a new period of tailwinds or tailspins, and what that means for our sectors, whether that be investors, occupiers, or residential clients. Europe is attracting unprecedented inflows of wealth. Regulation is reshaping value. In some markets, tighter rules have created scarcity premiums; in others, they have cooled investor appetite. Our view is that Europe remains a highly compelling place to own real estate.”