Oppor­tu­nities in Europe’s Real Estate Markets

In 2025, European real estate markets have entered a phase of clear recovery following several years of turbu­lence. Strong perfor­mance in listed real estate vehicles and the widening of risk premiums in direct investment markets have renewed investor interest in real estate, supported by a low interest rate environment and a limited set of attractive alter­native investment options. This recovery, however, remains uneven across countries, highlighting the impor­tance of a selective investment strategy.

Indirect investment: recovery across European listed real estate markets

In 2025, listed real estate companies across many European countries have delivered a strong rebound. By the end of November, substantial share price appre­ci­ation had been recorded in several markets. The recovery has been partic­u­larly pronounced in Southern Europe. Italy recorded the strongest perfor­mance, with listed real estate values up by +50.6% year-to-date, followed by the Nether­lands (+29.9%), Spain (+22.0%) and Belgium (+21.4%). Switzerland and France also reported solid double-digit gains.

This upward trend is primarily driven by easing monetary condi­tions and increasing confi­dence that the current accom­modative monetary policy environment will persist, alongside a generally positive economic outlook. Declining financing costs, combined with the continued scarcity of compelling investment alter­na­tives, have reinforced the relative attrac­tiveness of real estate invest­ments, a dynamic clearly reflected in rising market valua­tions.

---

Figure 1

---

Market levels remain below historical peaks in several countries

Despite the strong rebound observed in 2025, the medium-term perfor­mance picture remains mixed across Europe. Since the beginning of 2020 − a period encom­passing both the COVID-19 pandemic and the interest rate tight­ening cycle of 2022 − average annual returns remain negative in several markets. Poland (−7.3%), Germany (−6.1%) and Finland (−5.2%) have been partic­u­larly affected, with listed real estate markets still trading well below their previous cyclical peaks. Even in histor­i­cally resilient markets such as the United Kingdom and the Nether­lands, average annual returns since 2020 remain negative.

Accord­ingly, while 2025 marks a clear turning point charac­terized by renewed investor confi­dence, the struc­tural impact of the recent crisis years has not yet been fully absorbed. The sector is in a recovery phase, supported by improving financial condi­tions, but valua­tions in many markets remain below the highs recorded in the previous cycle.

Switzerland repre­sents a notable exception. Since the beginning of 2020, listed Swiss real estate companies have achieved an average annual return of approx­i­mately +4.3%, under­lining the compar­a­tively high resilience and stability of Swiss real estate invest­ments.

Direct real estate invest­ments: comparison of real estate risk premiums

Following several years of market correction, selected European real estate markets are once again offering attractive investment oppor­tu­nities. In most major cities, prime office yields have increased, resulting in real estate risk premiums (the difference between prime yields and ten-year government bond yields) that currently stand well above their ten-year averages. This indicates that investors are now being compen­sated above average for the risk assumed.

---

Figure 2

---

Higher risk premiums open up new entry oppor­tu­nities

Locations such as Paris La Défense (+59 basis points), Amsterdam (+58 bps), Prague (+51 bps), Budapest (+51 bps), Milan (+43 bps) and Berlin (+40 bps) appear partic­u­larly attractive. In Bucharest, Munich, Vienna, Madrid, and Dublin, risk premiums are also signif­i­cantly above their long-term averages. From a market pricing perspective, these locations currently offer favorable entry condi­tions for long-term investors.

---

Figure 3

---

By contrast, real estate risk premiums have declined sharply in London (−98 bps), Brussels (−53 bps), Oslo (−52 bps) and Paris (−51 bps). In these markets, return potential remains limited, as elevated capital values combined with compressed risk premiums continue to weigh on investment attrac­tiveness.

---

Figure 4

---

Broad oppor­tu­nities, but a selective approach remains essential

After several years shaped by the pandemic and the interest rate tight­ening cycle, many European cities once again offer attractive risk–return profiles. However, a sound assessment requires a compre­hensive analysis that also incor­po­rates under­lying market funda­mentals, medium-term market prospects, and the quality of the respective locations.

Prime office rents on an upward trajectory

Since 2020, prime office rents across European metro­politan markets have increased signif­i­cantly, under­scoring sustained demand for high-quality office space despite ongoing economic uncer­tainty. In major inter­na­tionally oriented office markets, rental growth has continued even amid rising interest rates and higher financing costs.

Strongest prime rental growth in Munich, Paris and London

Prime rents have recorded the strongest growth in Munich (+42.1%), Paris (+33.3%), London – West End (+32.9%), Prague (+31.1%) and Amsterdam (+29.0%). Lisbon (+27.5%), Milan (+27.1%) and Brussels (+27.0%) have also seen pronounced increases in rents at their most sought-after locations. This pattern highlights the dispro­por­tionate growth of top-tier rents.

Rental growth has been more moderate in cities such as Oslo (+12.6%), Berlin (+18.4%), Zurich (+16.7%) and Geneva (+11.7%). In Dublin, prime rents have remained broadly stable (+0.4%), reflecting a temporary softening in demand and a more ample supply of office space.

---

Figure 5

---

Growing polar­ization in European office markets

Overall, the gap between Europe’s most expensive and more affordable office markets has continued to widen. The fact that rental growth has been strongest in markets where rents were already high points to increasing polar­ization across European office markets − between highly resilient core locations and secondary markets that are more exposed to struc­tural change.