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Real Estate

European CRE: Despite a Firm Footing, the Recovery Stumbles…

February 2026 – 8 min read

Europe’s CRE market recovery conditions are in place—a stable interest rate outlook, steady property pricing, improved financing access and positive rental growth prospects. Whether the market recovery gains traction in 2026 will depend on wider geopolitical and economic events.

Executive Summary

ECONOMY

  • A two-speed economy is emerging in Europe, with the Southern economies driving growth.
  • Uncertainty has dented momentum in market sentiment.
  • As inflation returns to target, interest rates are likely to stabilise for now.

PROPERTY MARKETS

  • Underlying supports for the recovery in CRE transaction volumes are in place, subject to geopolitical risks.
  • An undersupply of modern, high-quality assets will continue to drive mid to long term rental growth performance.
  • The scope for yield compression is likely to be more limited in this property cycle than last.
  • Strong lender competition will benefit borrowers and provide support for new acquisitions.

Economic Outlook

The Eurozone economy showed only a modest 0.3% expansion in Q3 2025, but the headline growth belies varied growth trajectories across the continent. A two-speed recovery is emerging, with the southern European economies continuing to outperform, while Germany and Italy were stagnant.

After six months of steady gains, momentum in business sentiment softened into year end. The Eurozone Composite PMI eased to 51.5 in December, down from November’s 30 month high of 52.8, driven mainly by a pullback in services. The European Economic Sentiment Indicator slipped as well, edging down from 97.1 to 96.7, and remaining below the 100 threshold that typically signals sustained confidence .

Eurozone CPI dipped to 2.0% in December, bringing headline inflation back to the ECB’s target. Faster food inflation was offset by easing price pressures in services, industrial goods and energy. With inflation on target, the ECB held the main refinancing rate at 2.15% at its December meeting, helping anchor reduced interest rate expectations.

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Paul Stewart

Head of Real Estate Research & Strategy, Managing Director
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Benjamin Thatcher

Associate Director
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Joanne Warren

Director, Real Estate Research

Important Information

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Forecasts in this document reflect Barings’ market views as of the preparation date and may change without notice. Projections are not guarantees of future performance. The value of investments and any income may fluctuate and are not guaranteed by Barings or any other party. Examples, portfolio compositions, and investment results shown are for illustrative purposes only and do not predict future outcomes. Actual investments may differ significantly in size, composition, and risk. No assurance is given that any investment will be profitable or avoid losses. Currency exchange rate fluctuations may impact investment value.

Investments involve risks, including potential loss of principal. Past performance is not indicative of future results. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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