European Real Estate Managers see optimism Rising After transaction Surge
Table of Contents
- European Real Estate Managers see optimism Rising After transaction Surge
- Real Estate and infrastructure Investments Face Competition and Regulatory Scrutiny in Europe
- European Real Estate Market: Navigating Regulations and Finding Value in a Shifting Landscape
- European Real Estate: Navigating a Shifting Market Landscape – An Exclusive Interview
European private real estate managers are expressing increased optimism, signaling a potential turning point in the market.Stabilizing interest rates and pricing corrections are creating attractive buying opportunities for investors with available capital. Data from CBRE indicates a significant surge in European commercial real estate investment activity, totaling €206 billion in 2024, a 23 percent increase from 2023. The fourth quarter of 2024 saw transactions jump to €68 billion, a 32 percent year-on-year rise, reflecting growing confidence across the region. Despite this positive trend,challenges persist in fundraising,dealmaking,and investment performance.
Market Confidence and Emerging Opportunities
The European real estate sector is exhibiting renewed vigor, fueled by factors that are gradually shifting investor sentiment. After a period marked by uncertainty and cautious investment strategies,the market is beginning to present more appealing prospects for those ready to deploy capital. This shift is driven by a combination of stabilizing economic conditions and a clearer understanding of asset valuations.
Nicole Pötsch, co-head of investment for Europe at PIMCO Prime Real Estate, based in munich, observed the increased optimism as the EXPO Real industry fair in Munich last September. For an investor with dry powder, 2025 could be a very engaging year if thay are able to pick sectors and geographies supported by economic growth with the right underlying fundamentals. If you have a cautious and selective approach, there are good deals to be found already this year.
Shift Towards Core Strategies
As interest rates peaked, equity investors primarily focused on value-add and opportunistic strategies, with some shifting allocations to credit vehicles.Now, with rates expected to decrease, the risk-return balance is gradually tilting back toward core and core-plus strategies, and equity investment in general. INREV’s Investment Intentions Survey 2025 indicated that 38 percent of respondents preferred core real estate strategies in Europe,up from 21 percent in the 2024 survey. This shift reflects a growing confidence in the stability and long-term value of core assets.
Jon Strang, managing director at Cain International in London, commented on the shift: Those returns are probably still achievable, but the repricing in equity markets is getting to the level where the risk-return balance is now making sense for equity investments, too. there is a lot more engagement from equity investors, and that correlates directly with improving sentiment.
Liquidity and Transaction Activity
Despite the improving sentiment, a recent uptick in real estate performance proved short-lived.INREV’s Quarterly fund Index showed positive total returns for Europe at 0.59 percent in Q3 2024, but capital growth turned negative to -0.16 percent, following a single quarter of positive capital growth in Q2 at 0.09 percent. This highlights the ongoing volatility and the need for careful market analysis.
Jasper Gilbey, head of housing and alternatives for Europe at Nuveen Real Estate, headquartered in New York, pointed out the persistent lack of core takeout capital in the market. However, he also noted that investors are evaluating the market from a relative value outlook, seeking assets and sectors that demonstrate the best value at any given time, while waiting for pricing adjustments.
It has taken time for underlying valuations on the private real estate side to correct and bridge the buyer-seller gap.We are now starting to see that gap narrow to the point where liquidity is back. Interest rates are coming in, so we are seeing leverage becoming increasingly accretive, and it feels like continental European markets are starting to unblock,
Gilbey stated.
Pötsch added, Transaction activity is limited but growing. Ticket sizes are smaller than we have seen in the past. We are not seeing massive dealflow so far, but there are early green shoots. and depending on the sector, with logistics being one example, we do see competition for assets returning on the core and core-plus side, but activity in that segment of the market remains subdued.
interest Rates and Geopolitical Risks
While interest rates are trending down, Cristina Garcia-Peri, a senior partner at Azora in madrid, cautioned against expecting significant further declines. A lot of the things the Trump administration is talking about doing, like decoupling from China and tariffs, could have an inflationary impact, which means rates could stabilize at a higher level than what we all thought six months ago.We may potentially get a few more reductions, but this might be nearly as good as it gets, which makes it a good time to get into the market.
Greg Minson,global head of asset management,real estate,at ICG in London,which invests through both debt and equity strategies,predicted that Sentiment is improving,albeit off a low base,and real estate funds deployed at 2024 and 2025 asset pricing will be a good vintage.
Though, he emphasized the challenges of operating in the current fundraising surroundings and securing competitive bank debt.
The level of interest rates remains the most influential factor in determining the recovery’s trajectory. Minson noted that geopolitical risk perceptions are propping up interest rates despite sluggish growth in many European economies. The crucial question over the next 12 to 24 months is: what will be the level of geopolitical risk? Is it going to be a riskier surroundings or a de-risked one?
Strang warned that rates staying higher for longer could worsen Europe’s economic stagnation,notably if influenced by U.S. policies. Garcia-Peri expressed hope that a new U.S. president would prioritize ending conflicts, particularly in Ukraine, which could benefit the entire European economy.
Regional Market Dynamics
Local political factors are also impacting investor sentiment. Gilbey noted caution among some investors regarding the UK, awaiting the impact of the Labor government’s economic policies. Nuveen’s investors currently favor southern European countries and the Nordics, with Germany and France viewed as more opportunistic plays.
Garcia-peri highlighted the compelling residential market dynamics in Spain, Italy, and Portugal, characterized by housing shortages and stable investments. Strang pointed out that germany’s recent economic struggles have created opportunities to acquire desirable industrial assets.
Pötsch acknowledged that Germany has lost its position as Europe’s traditional safe haven for capital, but noted that significant price reductions offer interesting deals. Garcia-Peri argued that difficulties in Europe’s core markets will accelerate the reallocation of investor capital toward the south.
Conclusion
While challenges persist, European real estate managers are cautiously optimistic about the future. Stabilizing interest rates, emerging buying opportunities, and shifting investor sentiment suggest a potential upswing in the market. Geopolitical risks, local political factors, and the overall economic climate will continue to play crucial roles in shaping the trajectory of European real estate in the coming years. The focus remains on selective investment strategies and careful navigation of market dynamics to capitalize on emerging opportunities.
Real Estate and infrastructure Investments Face Competition and Regulatory Scrutiny in Europe
European real estate investors are facing increased competition from infrastructure investments, as noted by Cristina Garcia-Peri, Partner and Head of Business Advancement and Strategy at azora. A roundtable discussion highlighted the blurring lines between real estate and infrastructure, with participants weighing in on the challenges and opportunities in the current market.The discussion also addressed the growing regulatory burden impacting real estate investments across Europe.
The convergence of real estate and infrastructure is particularly evident in sectors like data centers,where investors are divided on whether to classify them as real estate or infrastructure assets. This evolving landscape requires specialized expertise and a nuanced approach to investment strategies.
Competition Between Asset Classes
Cristina Garcia-Peri of Azora, which manages approximately €14.4 billion of real estate assets, emphasized the need to monitor competition from both fixed income and infrastructure. She noted that investors often have larger existing allocations to real estate, but infrastructure returns offer compelling characteristics, including lower correlation with economic cycles and stronger links to inflation.
Our sector needs to watch out for competition, not only from fixed income, but also from infrastructure. Investors already have much larger existing allocations to real estate, and infrastructure returns have some compelling characteristics.They are less correlated with the cycle and more firmly linked to inflation.
Cristina Garcia-Peri, Azora
Greg Minson, Global Head of asset Management, Real Estate at ICG, which manages $107 billion of assets, acknowledged that while combining infrastructure and real estate under a single umbrella can be logical in certain specific cases, essential differences remain. He pointed out that an infrastructure investor would likely not be interested in owning a tenanted office building, and a real estate investor would likely not invest in pipelines. However, Minson conceded that overlap exists in assets like data centers.
There are examples where aggregating infrastructure and real estate under a single umbrella makes sense. But an infrastructure investor won’t want to own a tenanted office building, and a real estate investor won’t want to invest in pipelines. However,there will be some overlap around assets like data centers.
Greg Minson, ICG
Nicole Pötsch, Head of North and Central Europe and Co-Head of Investment Europe at PIMCO Prime Real Estate, part of the $183 billion PIMCO real estate platform, echoed this sentiment, stating that for new sectors like data centers, some investors treat them as infrastructure, while others view them as real estate. However, she believes that for traditional sectors like office, living, logistics, and retail, investors will continue to seek
European real estate investors are facing a complex environment marked by shifting investment strategies, increased regulatory burdens, and competition from infrastructure assets. A recent roundtable discussion highlighted the need for value-add activities like green capex and active asset management to deliver attractive returns in a higher-for-longer interest rate environment. Experts emphasized the importance of deep expertise in specific sectors and a focus on ESG initiatives that drive NOI and value creation.
Core vs. Value-Add: A Shift in Investment Strategies
The European real estate market is witnessing a notable shift towards core and core-plus investment strategies. This change reflects a more cautious approach from investors seeking stable and predictable returns amid economic uncertainty. While value-add and opportunistic strategies previously dominated, the focus is now on established, high-quality assets with reliable cash flows.
This trend is driven by several factors, including the stabilization of interest rates and a desire to mitigate risk. However, experts caution that increased competition for core assets could lead to tighter pricing and reduced returns for late entrants. Thus, thorough due diligence and strategic positioning are crucial for investors seeking to capitalize on this shift.
Infrastructure Investments: A Growing Competitor
The lines between real estate and infrastructure investments are becoming increasingly blurred, particularly in sectors like data centers and renewable energy facilities.This convergence presents both challenges and opportunities for real estate investors. nicole Pötsch of PIMCO Prime Real Estate noted that some investors treat data centers as infrastructure,while others view them as real estate.
For new sectors like data centers, we see that some investors treat it as infrastructure and others like real estate. Though, for the traditional sectors like office, living, logistics and retail, I believe that investors will continue to look for specialized real estate teams.
Nicole Pötsch, PIMCO Prime Real Estate
Jon Strang, Managing Director, Head of Logistics and Net Lease at Cain International, which has $17 billion in real estate AUM, highlighted a key distinction between the two asset classes. He explained that real estate is “occupied,” while infrastructure is “utilized.” Real estate competes for tenants with shorter lease terms and a focus on user experience, while infrastructure operates as location-specific, regulated monopolies. Strang emphasized that deep expertise in each area remains critical from an investment and asset management perspective.
A key distinction is that real estate is ‘occupied,’ while infrastructure is ‘utilized.’ Real estate competes for tenants,with shorter lease terms and a focus on user experience to secure income. Infrastructure operates as location-specific, regulated monopolies, requiring a fully different approach to dealmaking. From an investment and asset management standpoint, deep expertise in each remains critical.
jon Strang, Cain International
Sector Specialization: A Strategic Advantage
To navigate the complexities of the European real estate market, sector specialization is becoming increasingly crucial.Jasper Gilbey, Head of Housing and Alternatives, Europe, at Nuveen Real Estate, the investment management arm of TIAA with approximately $145 billion AUM, mentioned Nuveen restructured its real estate platform in europe four years ago to move from a country- to a sector-specialist model.This shift allowed them to better leverage their broader real assets business and execute sizable real estate-anchored deals,leveraging their private equity division and the specialist knowledge of their infrastructure and renewables teams.
At Nuveen we restructured our real estate platform in Europe four years ago to move from a country- to a sector-specialist model – while also better leveraging our broader real assets business.We have executed sizable real estate-anchored deals where we have also leveraged our private equity division to assist with onboarding operating companies while also feeding off the specialist knowledge of our infrastructure and renewables teams.
Jasper Gilbey, Nuveen Real Estate
The Regulatory Landscape
European real estate investors are increasingly concerned about the growing regulatory burden. In the residential sector, rising rents have led to rent control measures by local and national politicians.
Garcia-Peri stated that regulation is only increasing. She suggested focusing on investing in less regulated parts of the living market. Though,she acknowledged that regulation can be priced in if it exists at the time of investment. The main issue arises when regulation changes during the investment holding period.
Garcia-Peri also argued that decarbonization regulations are excessive and negatively impacting economic growth. She warned that smaller companies are struggling to meet carbon reporting directives and that bureaucracy is stifling tech innovation. She suggested that deregulation in the U.S. could highlight the difference in economic growth and potentially force Europe to reconsider some regulations.
Minson anticipates that many of ICG’s future acquisitions will require ESG-related improvements.He views green capex as a crucial element of value creation in a higher interest rate environment, where investors can no longer rely on cap rate compression. He emphasized that investors want ESG initiatives that drive NOI and value creation, rather than those performed solely for the sake of ESG.
Strang agreed that many green building regulations improve performance and drive returns. However, he also acknowledged that some ESG rules have become too burdensome, making certain projects less feasible. He stressed the need for a healthy balance and greater investment in education to prevent ESG requirements from negatively impacting returns, causing delays, or discouraging investment.
Looking Ahead
the roundtable participants agreed that in a higher-for-longer interest rate environment, value-add activities like green capex, active asset management, and taking operational risk will be essential for delivering attractive returns.
Investors can find reassurance in the stabilization of interest rates. Moreover, the supply-demand balance appears favorable in many european markets, particularly in sectors like multifamily, student housing, and logistics. Gilbey estimates that potential unlevered returns across most key sectors are in the 7-10 percent range over a five-year horizon.
Gilbey added that with financing,real estate equity returns in some continental markets are becoming relatively attractive compared to private credit and other asset classes. He believes the market has moved past the paralysis of 2023 and is now seeing increased liquidity and a favorable entry point, making it an opportune time to structure interesting deals.
With financing on top of that I think we start to get to the point in some of the continental markets where real estate equity returns look relatively attractive versus private credit and other asset classes. We have moved away from the paralysis of 2023 into a market where we are starting to see increased liquidity and a favorable entry point. now is the time to start structuring interesting deals.
Jasper Gilbey, Nuveen Real Estate
Is the European real estate market poised for a notable rebound, or are we facing a prolonged period of uncertainty? The answer, as you’ll see, is far more nuanced than a simple yes or no.
Senior Editor (SE): Dr. Anya Sharma, welcome.Your expertise in European real estate investment strategies is highly regarded. With recent reports indicating both optimism and challenges within the market, could you provide a high-level overview of the current state of play?
Dr. Anya sharma (DAS): The European real estate market is experiencing a interesting period of transition. While headlines often focus on short-term fluctuations, the underlying dynamics point towards a more complex, multi-faceted reality. We’re seeing a fascinating interplay of macroeconomic factors – interest rate adjustments, inflation concerns, geopolitical instability – combined with the evolving preferences of investors and the increasing influence of enduring investment strategies.Understanding this interplay is crucial for navigating the market effectively.
SE: Many reports highlight a surge in transaction activity, particularly in Q4 of the most recent year.How significant is this increase, and what are the key drivers behind it?
DAS: The increase in transaction volume, while encouraging, requires careful analysis. It’s not simply a blanket resurgence; it’s considerably influenced by asset type, geographic location, and investor category. Stabilizing interest rates have undoubtedly played a vital role,making financing more accessible and attractive. This, coupled with price corrections in certain sectors, has created opportune moments for investors with dry powder, particularly those focusing on core and core-plus strategies. Though, the market is far from homogenous. We see pockets of intense activity alongside others experiencing continued subdued performance.
SE: The shift towards core and core-plus strategies seems quite pronounced. What’s fueling this trend, and what are the potential risks associated with this shift?
DAS: The movement away from value-add and opportunistic strategies towards core and core-plus reflects a risk-aversion trend among investors. Essentially, in a period of uncertainty, investors prioritize predictable cash flows and stable returns offered by established, high-quality assets. This is driven by the need to mitigate risk against increased interest rates and uncertainty about future economic and geopolitical conditions. However, the increasing demand for these core assets could lead to competition and compressed returns. Investors need to conduct incredibly thorough due diligence and possess sharp sector expertise to secure attractive deals in this increasingly competitive arena.
SE: The articles mentioned growing competition from infrastructure investments.How significant is this rivalry, and how are real estate investors adapting?
DAS: The convergence of real estate and infrastructure is indeed reshaping the investment landscape. Sectors like data centers blur the boundaries between these asset classes, leading to competition for capital. Infrastructure investments often boast characteristics appealing to some investors: lower correlation with economic cycles and stronger links to inflation. Real estate investors are adapting by:
Specializing: Focusing on niche sectors where they possess deep expertise.
Diversification: Considering strategic partnerships and collaborations with infrastructure firms.
Innovation: Incorporating technology and ESG factors to enhance the appeal and competitiveness of thier real estate portfolios.
SE: The regulatory habitat plays a huge role. What are some key regulatory hurdles facing real estate investors in Europe, and how are they navigating these challenges?
DAS: The regulatory landscape in Europe is multifaceted and complex. Increasing ESG regulations, while intended to promote sustainability, can add complexity and cost to projects. Moreover, some local rent control measures are impacting investor returns in the residential sector. Navigating these challenges requires:
Proactive compliance: Staying informed about the updated regulations and incorporating them into investment strategies.
ESG integration: Viewing ESG factors not merely as compliance requirements, but as opportunities to enhance asset performance and value while attracting investors.
Strategic location selection: Focusing on markets with a more favorable regulatory environment, specifically in less-regulated sectors of the housing market.
SE: What are some key opportunities for investors in the current environment, and what advice would you offer to those seeking success in this market?
DAS: Opportunities exist for investors willing to be selective and patient. Price corrections in certain sectors, particularly in specific geographic locations, present lucrative long-term prospects with sufficient due diligence. Additionally, the increasing demand for sustainable and technologically advanced real estate assets could yield significant benefits for those who identify these emerging opportunities and invest in upgrades accordingly. my advice would be to:
Prioritize selectivity: Focus on specific sectors and locations based on a comprehensive market analysis.
Embrace active management: Go beyond passive ownership and actively engage in asset management to enhance value.
Integrate ESG initiatives: Consider ESG factors as crucial elements of an investment thesis, not just a compliance checklist.
Develop a long-term vision: recognize that patience and a strategic long-term approach are key to success in this evolving market.
SE: Dr. Sharma, thank you for shedding light on these highly valuable insights into the European real estate market.Your perspectives provide a crucial framework for both established and aspiring investors.
DAS: My pleasure. The European real estate sector presents a diverse array of both challenges and opportunities. success hinges on adaptive strategies, a deep understanding of the market, and a long-term vision.
What are your thoughts on the future of European real estate? Share your predictions and opinions in the comments below! Let’s discuss!