If 2025 can be characterised as the year in which various geopolitical storms served to obscure the start of a new property cycle, 2026 will be the year in which more firms start spotting opportunities on the horizon given the strong fundamentals within, and ultimately the recovery of, European real estate.
 
The ‘cautious optimism’ behind the phrase “survive ‘til 2025” failed to deliver due to political uncertainty discouraging decisions to invest and consume, while property pricing treaded water and REITs and yields remained broadly stable. However, as we enter the final stretch of 2025, there are at least six reasons to be genuinely optimistic on the recovery for 2026.
 
Firstly, markets get used to uncertainty. If one looks at the Global Economic Policy Uncertainty Index over the past two decades, one will see frequent spikes and dips. A now frequently heard expression is that the only certainty in the market is uncertainty. Yields in most European markets also now look sufficiently attractive and, with ECB rate cuts largely complete, future yield compression will be focused on assets able to deliver sustained rental growth. Further, we can hope to see US interest rates ease through 2026 which should help UK rates also to fall and ease tighter property spreads there.

Meanwhile, revenue growth across most commercial sectors looks set to continue. This comes alongside chronic stock shortages across asset classes but particularly in housing, where few developed markets even came close to the housing starts they need, with Spain, the Netherlands, Sweden and the UK all at or under 40% of their national target. 

Notwithstanding potential technical innovations in the construction industry, development economics are challenging, with values down and build costs up. Inventory shortages thus look set to intensify, pushing rents upwards across multiple sectors. Unsurprisingly, lenders intentions surveys and access to debt capital will thus continue to improve.
 
All this is to say that 2026, particularly the early part of it when many investors look likely to remain overly cautious, is a significant buying opportunity for those who are able to successfully recycle capital. 
 
That’s not to say opportunity will be easy to come by. European real estate is increasingly a stock-picker’s game, one that requires a deep level of insight into macro trends and a presence on the ground in order to identify opportunities early.  Fewer deals are being done in the traditional broker-led market as off-market transactions between active players become more common and more important in securing the right deals.
 
We’re getting closer to a sweet spot where sentiment is improving and vendors are becoming more pragmatic. The market is whirring into action and, having had a very active 2025, we at Barings intend to maintain our momentum into the new year.