Europe’s real estate sector is demonstrating a notable shift from caution to conviction as it enters 2026. Stabilizing economic conditions, improving financing costs, and robust structural growth drivers are fueling renewed confidence among investors and occupiers. This positive trajectory is supported by increased capital flow and a more predictable interest rate environment, signaling a broader market recovery.
Shifting Market Dynamics
After a period marked by uncertainty and adjustment, the European real estate landscape is experiencing a significant turnaround. Cushman & Wakefield’s latest forecasts indicate a move towards renewed confidence, with investors and occupiers transitioning from a cautious stance to active engagement. This shift is underpinned by stabilizing economic indicators and a more favorable financing cost environment.
Debt Capital Fuels Recovery
The availability and active deployment of debt capital are central to the ongoing recovery of the European property market. Lenders are increasingly engaged in new business, utilizing refinancing and restructuring to enhance liquidity and secure market share. This heightened competition among financiers is leading to compressed margins but also facilitating access to capital and accelerating transaction timelines. The easing of interest rates, with short-term EURIBOR rates around 2% and long-term swaps between 2.4% and 2.8%, provides a more stable and predictable environment for real estate investment, enabling investors to better plan and achieve their return objectives.
Sectoral Opportunities and Market Valuations
Cushman & Wakefield’s TIME Score, an indicator of market cyclical positioning, has risen, reflecting a turning point in the investment market and a broadening recovery across various sectors. Logistics, retail, and hotels are particularly attractive due to strong operating metrics and increasing demand. While ESG-compliant premium office properties maintain stable rental prices and absorption, portfolios in less desirable locations with quality deficits face ongoing structural challenges. The Fair Value Index reveals that a substantial 78% of surveyed markets are undervalued, indicating numerous selective investment opportunities, with logistics leading the list of promising markets.
German Market Shows Promising Signs
Germany is emerging as a key driver of the European recovery, with its property market showing signs of an incipient turnaround. Transaction volumes are projected to grow, supported by both domestic and international investors capitalizing on stabilized interest rates and attractive risk premiums. Demand is particularly strong for modern office spaces in central locations and logistics facilities. Special funds are increasingly focusing on logistics and residential asset classes, with planned investments indicating significant capital allocation. Institutional investor confidence is also on the rise, with fundraising for European commercial real estate showing a clear turning point compared to previous years.
Focus on Quality and ESG Compliance
As the market recovers, there is a pronounced emphasis on quality and ESG compliance. Investors are aligning their strategies with core returns, diversification, and premium assets that meet environmental, social, and governance standards. This focus on quality, combined with improving liquidity and narrowing bid-ask spreads, is expected to drive above-average performance. The German market, in particular, is benefiting from this trend, with residential and logistics asset classes in high demand, and prime office spaces continuing to offer stable returns.