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