19 March 2025, Amsterdam – The latest edition of the INREV Market Insights reflects a mixed picture for European real estate. While market performance show further signs of improvement, sentiment remains cautious, and in some areas, it is deteriorating. The latest INREV Consensus Indicator reveals a weakened sentiment in the European real estate sector. The Indicator’s headline reading of 56.7 marks a drop from 57.8 recorded in December 2024, the first decline since September 2023. All five sub indicators declined this March. Investment liquidity (63.2) and financing (61.3), which had demonstrated substantial improvement last year, decline from 63.3 and 61.5 in December 2024. They remain the only two sub indicators above the 60 mark, maintaining the strongest sentiment across the five. The economic and new development sub indicators remain in contraction territory, with the economic sub indicator dropping significantly from December’s 47.4 to 44.0.
There are rising concerns over subdued economic outlook for most major European economies, but there are exceptions. Off the back of strong economic growth, Southern Europe leads investment sentiment rankings, while major economies weaken. Spain is leading the charge and setting a record 39% reading for net positive sentiment, followed by Italy at 24%. Investor sentiment towards the Nordics also remains strong at 18%, well above its five-year average.
Residential retains the top spot for positive sentiment amongst key sectors, while retail sentiment retains momentum, with a net 20% for a second consecutive quarter. Other living sectors, including senior living and student housing, also reflect positive sentiment, though slightly below their long-term averages since the survey began in 2020.
Sentiment towards the industrial/logistics sector moderates to 12%, down from 19% in December 2024. While still in net positive territory, this marks a slight dip below its long-term average. For offices, the net sentiment stands at 0% in March 2025, an improvement of 8% since December 2024. While neutral overall, this represents the highest sentiment level for offices since March 2022.
The decline in investors’ sentiment for some major markets, notably the UK, France and Germany, follows a strong end to 2024 for European real estate. Indeed, the Q4 2024 INREV Quarterly Fund Index posts a total return of 1.21% for Q4 2024, marking its highest level since Q2 2022. However, capital growth remains weak all the way through to Q4, turning only marginally positive at 0.03% (-0.18% in Q3 2024). The one year rolling capital growth, though improving, remains negative at -0.59%, signalling that challenges persist.
On a one-year annualised basis, all key geographies deliver positive returns in 2024, marking an improvement over the three- and five year- average annual performance, except Germany. Assets in the Netherlands, Spain and the UK are the strongest performers. Notably, the one-year annualised returns for the Netherlands (9.32%), Spain (6.68%) and the UK (5.84%) exceed their respective ten year annualised averages. Southern Europe is also gains momentum, with the Spanish and Italian asset performance reflecting stronger economic recovery.
Meanwhile, Germany’s one-year annualised 2024 return of 0.24% starkly contrasts its ten-year annualised average of 6.77%. Persistently lagging its European peers, the recent US tariffs may add further headwinds, prolonging a meaningful economic recovery.
Sector contributions to the overall 2024 city level performance continue to reflect distinct regional dynamics across Europe. The Netherlands are once again supported by the strength of their residential assets. This trend extends across all European cities analysed, with residential making a positive contribution to the overall 2024 annualised performance. Office sector performance contribution remains mixed. While office assets strongly contribute to positive returns in cities like London and Paris, they notably weigh down overall performance in German markets.
Looking ahead, 14% of surveyed respondents report an improved outlook for European real estate performance. However, despite this strong performance of assets across the board, investors’ assessment of risk is dramatically higher, up by 30% from last December.
Commenting on the results, Iryna Pylypchuk, INREV’s Director of Research and Market Information, said: “Whilst last year ended with all major European markets delivering positive returns, the drop in sentiment and increased sensitivity to risk is likely reflective of the global challenges to security and trade that have dominated the start of 2025. High trade policy uncertainty and further possible impact on exports and investment dampen the likelihood of a significant near-term rebound for most European economies.
“On the whole, the real estate sector is once again reminded that the near-term recovery will be slow and protracted and is not immune from external factors. Whilst the downturn in confidence is modest for now, the bottom-up approach to asset selection and careful tenant quality watch is a must. Counter cyclical tailwind sectors showed through with the strongest and most consistent performance, both recent and historic, but now may also be a good time to explore market bifurcation for potential mispricing and repositioning opportunities.”