Macro setup (what changes into 2026)

• Rates & growth: ECB held at 2% on Jul 24, 2025 and staff projections put inflation at ~1.6–1.9% in 2026—a broadly supportive backdrop for debt costs and cap rates if growth holds.

• Housing & credit pulse: EU analysis points to improving household borrowing capacity in 2025–2026, aiding residential demand; Germany consensus expects house prices to rise again through 2026.

• Policy kicker: The recast EPBD must be transposed by 29 May 2026; expect MEPS/renovation plans to flow into underwriting (brown discounts vs. green premia). Draft Commission guidance landed 30 Jun 2025.

Capital markets & volumes

• After a 2025 recovery, investment volumes are forecast to rise ~19% in 2026 (Savills). Bid–ask gaps continue to narrow as pricing stabilizes.

Sector outlooks for 2026

Logistics & Industrial

• Development is subdued; completions forecast to drop vs. recent years, keeping vacancy contained and rents supported. Focus on near-city infill and modern specs.

Data centers / Digital infra (real estate adjacencies)

• Power is the constraint: EU/UK demand and grid bottlenecks are intensifying; expect site/energy-secured land to command premia. This theme underpins industrial land and energy-adjacent assets in 2026.

Living (PRS, student, senior)

• Chronic undersupply persists; rents are projected to grow on average ~3.3% p.a. across major cities in 2026–2030. Best risk-adjusted returns in supply-choked metros with flexible regulation.

Offices

• Bifurcation endures. European office completions fall to ~3.1m sqm in 2026 (from 4.3m in 2025), helping vacancies peak/plateau in many CBDs; prime ESG-compliant product leads leasing and pricing. Secondary stock faces capex drag or conversion math.

Retail

• Stabilized and selective. Prime convenience and dominant urban schemes continue to show resilient footfall and investor interest where incomes and tourism support spend.

Hotels

• Transaction markets remain active as pricing clarity and debt availability improve; urban, experience-led assets in major gateways look best placed into 2026.

2026 positioning (playbook)

• Core / Core-plus: Prime logistics near Tier-1 cities; living in undersupplied, regulation-friendly metros; best-in-class CBD offices with strong EPC trajectory and limited competing pipeline.

• Value-add: EPBD-driven retrofit (energy systems, envelopes, on-site renewables). Target stranded B/C offices and retail boxes in good micro-locations for upgrade or conversion (where housing policy supports).

• Alternatives / Thematic: Power-secured data-center land, edge-ready industrial campuses, student housing in academic hubs with capped pipelines.

• Debt strategies: Selectively originate senior/mezz on high-quality assets needing EPBD-capex or refinance; benefit from de-risked LTVs and improving take-out markets in late-2026.

Key risks to monitor

• Energy & grid availability (pricing and connection timelines), rate path re-acceleration, and policy implementation variance across Member States affecting MEPS and renovation timelines.

 

1. Residential Real Estate

• Germany: Analysts expect home prices to rise by around 3% in both 2025 and 2026, fueled by lower borrowing costs and elevated rental demand. Rents are projected to grow faster—between 4–5%.

• United Kingdom:

  • Savills, Rightmove, and Zoopla forecasts for 2025 have been scaled back to 1–2% growth due to oversupply. Activity, however, has stabilized, with stronger growth anticipated from 2026 onward, supported by rising wages and easier mortgage access.

  • Other projections foresee a recovery reaching 5.5% growth by 2026, assuming falling rates and rising incomes continue to support demand.

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2. Commercial and Alternative Real Estate Sectors

• Prime Offices:
  UBS reports that demand remains strong for high-quality offices. Prime rental growth in Europe stands at +8.2% YoY, outperforming residential and industrial sectors. Markets like London’s West End and UK cities are expected to see ~4.5% p.a. rent growth by late 2027; in other European cities like Munich, Madrid or Amsterdam, projected growth is around 3–4% p.a. In contrast, cities such as Rome and Berlin may see more modest ~1% p.a. growth.

• Logistics & Warehousing:
  Demand moderated from pandemic-era highs, but JLL and BNP Paribas expect continued growth marginally above inflation. The sector retains long-term momentum, especially in Central and Eastern Europe and in data center development across Southern Europe, forecasting a balanced recovery by 2026.

• Retail:
  Recovering selectively at the prime end—particularly in high-street and retail warehousing formats. BNP Paribas sees cautious re-entry opportunities in these segments across Western Europe.

• Data Centers / Digital Infrastructure:
  Driven by explosion in AI and big data, demand outstrips supply, especially in Frankfurt, London, Amsterdam, Paris, and Dublin. Rents are projected to grow in the high single-digit range over the medium term.

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3. Structural Shifts & Value-Add Strategies

• JLL flags a major wave of office obsolescence: between 322–425 million m² of office space will need significant capex over five years to stay relevant. Europe accounts for roughly 34% of that, opening up opportunities for repositioning, retrofitting, or converting to residential/hotel use—where regulations and economics allow.

• The push for decarbonization and sustainability is no longer just an ESG checkbox—it’s a strategic economic move. Energy efficiency upgrades, lower operational costs, and regulatory resilience are likely to become mainstream value drivers by 2026.

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Quick Summary Table