Southern Europe fuels commercial real estate growth in Q3

The European commercial real estate market showed renewed energy in Q3 2025, according to Dils, with Southern European countries leading the growth and Central/Western European markets remaining stable.

European Market Report - Dils

Portugal and Spain saw the most significant growth in commercial real estate investments since early 2025, up 83% and 64% respectively. Italy also performed well with a 22% annual increase, matching its historical highs. This strong performance confirms Southern Europe as the primary growth engine for the continent's real estate, having regained attractiveness after past financial crises. Spain, in particular, now boasts Western Europe's highest GDP growth, while Italy enjoys greater political stability and lower borrowing costs. Notably, Spain has surpassed France to become the second-largest continental European market by invested capital.
In contrast, France, the Netherlands, and Germany experienced stable investment volumes in Q3 2025, but remained below their previous peaks due to ongoing economic and financial uncertainties. Their results were generally consistent with Q3 2024, with slight positives for Germany and the Netherlands, and a minor dip for France.
Retail, living, and hospitality sectors were major investment drivers, especially in Southern Europe, where they account for about 60% of total volumes (compared to 50% in Central/Western Europe). The office sector remained largely stable, despite minor contractions in Italy and France. Logistics investments declined, primarily due to weak performance in France and the Netherlands.
Further investment growth is anticipated as yields compress, a trend starting with the stabilization of the financial environment and the ECB's neutral monetary policy (refinancing rate stable at 2.15%, aligning with the 2% inflation target). However, global political tensions and US trade policies are creating uncertainty for businesses and investors, though recent manufacturing PMI data suggest stabilization in European industrial production.
Occupier demand was generally stable, with some bright spots like increased office take-up in Barcelona and a rise in logistics activity in the UK and the Netherlands. Large-scale office transactions were limited, especially in Milan and Paris, as tenants increasingly prefer modern, well-located spaces. While overall logistics activity is down, Germany, Europe's largest market, saw a 10% increase in take-up after a low in 2024.
The residential sector continues to benefit from 2024's interest rate cuts, which improved mortgage access and boosted housing demand. Most countries saw an increase in residential transactions year-on-year, often accompanied by slight price increases per square meter, with Portugal showing more significant gains.