The real estate market enters a recovery cycle based on income growth
Since the start of 2025, real estate markets across Europe have been impacted by renewed volatility due to growing protectionist pressures and increased geopolitical unpredictability, making investors more cautious despite the European Central Bank’s rate cuts.
However, real estate continues to offer resilience as the long-term fundamentals remain compelling and continue to support a positive view. In the Q1 2025, European real estate investment volumes reached €45bn showing a 6% increase compared to last year. This growth was supported by the office, retail and residential sectors while logistics and hotels showed signs of losing momentum. The residential sector notably stood out accounting for around €9bn and 20% of total investment volumes.
In this recovery context, income growth will become central for investors. Performance will be increasingly driven by income growth, with rental fundamentals emerging as the main source of value creation. Non-traditional sectors should continue gaining shares, but core sectors will likely continue to attract the majority of investment volumes. Investors will need to focus on sectors where demand is resilient and supply is constrained, particularly in residential, prime offices and logistics.
“Even though there is still some uncertainty and investors are being cautious, confidence in the resilience of European real estate is strong. The market has entered a recovery cycle with most of the repricing done, an improvement of rental fundamentals and the rise of new opportunities. As usual, selectivity will be key for investors to manage strong performance. They will have to rely on asset quality and location, operational expertise and alignment with long-term trends” comments Laurent Ternisien, Deputy Global Head for BNP Paribas REIM.
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