18th June 2025, Amsterdam – The latest Market Insights report from INREV reveals a drop in sentiment towards the European real estate market for a second consecutive quarter, with the Consensus Indicator for June declining to 52.2, down from 56.7. This comes despite the Q1 2025 Quarterly Fund Index posting a positive total return of 1.04% and capital growth increasing to 0.56%, its strongest showing since Q2 2022.
Overall, the research points to a disconnect between performance and sentiment, reflecting that market participants are still proceeding with caution.
June 2025 marks the first time since March 2024 that a total of three subindicators – new development, investment liquidity and economic subindicators – all fell below 50, pointing to contraction and highlighting growing uncertainty surrounding the trajectory of market recovery.
Positive quarterly returns across main sectors, office rebounds
After several quarters of negative asset-level returns, the office sector posts positive returns of 1.11% in Q1 2025. Residential and retail remain in the top spots (2.03% and 1.99%, respectively) but student housing and industrial/logistics follow very closely, delivering quarterly returns of above 1.80%.
However, sentiment towards retail and office sectors does not necessarily follow suit. The peak in sentiment for retail may have passed, dropping 16% quarter-on-quarter to 6%, whilst net sentiment towards offices slid into the negative at -10%.
Student housing the new darling of the living sector
The living sector’s stellar performance continues unabated. In terms of sentiment, the student housing sub-sector overtakes traditional residential this quarter, capturing 26% net interest, an increase of 14% since March. Residential follows closely, with 25% of participants indicating plans to increase their allocation, broadly in line with its long-term average of 26%.
On the other end of the spectrum, interest in senior living declines from 13% in March 2025 to 0% in June. The divergence between the senior living and student housing results may reflect differences in national preferences and policies, but it also highlights the growing maturity and institutionalisation of the student housing sector. Unlike student housing, which benefits from established platforms and clearer operating models, the senior living sector remains relatively fragmented and underdeveloped at a pan-European scale, limiting investor confidence for now.
Germany bounces back
Germany remains in positive territory with a total Q1 2025 return of 1.19%, largely supported by the strong performance of industrial/logistics, which posts a return of 2.09%. June reveals a marked positive shift in sentiment towards Europe’s largest economy, with a net 20% share of participants indicating their intention to increase German investments, up from just 3% in March. Germany’s net positive sentiment signals renewed investor confidence. The first half of the year marked wider changes in Germany, including the formation of a new coalition government alongside the appointment of a new Chancellor, the suspension of the ‘debt brake’, and a notable spending boost for defence and infrastructure.
Transaction volumes in Q1 2025 are the lowest for a first quarter in ten years
The investment liquidity subindicator sees the most dramatic decline, from 63.2 in March to 47.4 at mid-year. This marks the first time it slides back into contraction territory since March 2024. Transaction volumes in Q1 2025 are the lowest for a first quarter in ten years, indicating that the European direct real estate investment market is set for a quiet summer.
Commenting on the results, Iryna Pylypchuk, Head of Research and Market Information at INREV, said: “While European real estate has maintained positive performance, market participants remain prudent, behaving on a side of caution. The latest INREV Consensus Indicator highlights growing uncertainty surrounding the trajectory of market recovery, uncovering a lack of consensus as market bifurcation intensifies.
“Germany’s improved outlook is encouraging, as well as the robust performance across Europe’s living, industrial and logistics and retail sectors.
“The steep decline in direct investment activity is a concern. However, it may reverse easily as soon as economic and occupier markets confidence is back up.
“The rise and on-going strength of southern European markets is most certainly positive news. The much-improved sentiment towards Germany should encourage those looking at European strategies, given the significance of this market within Europe and its overall high levels of liquidity.
“Investors should keep in mind that Europe is leading the global recovery cycle. Current market inertia presents a timely window for new opportunities, even though recovery may be more protracted, the turnaround might happen faster than current sentiment predicts.”