The European commercial real estate (CRE) market has entered a valuation correction phase, driven by interest rate hikes and heightened economic uncertainty. Among major global regions, Europe continues to exhibit the slowest pace of recovery.

Prolonged investor caution and deteriorating capital market conditions have further contributed to a continued slowdown in capital inflows. In 2023, total fundraising for European commercial real estate amounted to approximately USD 14 billion—marking a 54% decline year-over-year and underscoring the persistence of market correction dynamics.

Signs of a Bottoming Out: Early Recovery Sentiment Emerging

Fundraising activity in the European commercial real estate (CRE) market remains subdued in 2024, even further down from 2023 when the global CRE downturn became more pronounced. The further decline in fundraising activity suggests that a short-term recovery remains unlikely.

However, average asset prices have declined from €3,333 per square meter in 2021 to €2,561 in 2024, approaching cyclical lows. Recently, tentative signs of a rebound—around 4%—have emerged. As a result, there is a growing perception that the price correction has largely run its course, fueling investor expectations of a gradual recovery beginning in 2025.

According to a survey conducted by CBRE of 781 institutional investors across Europe, 70% view 2025 as the turning point for market recovery, while the remaining 30% anticipate a rebound from 2026 onward. These results suggest that the prolonged CRE downturn in Europe is increasingly seen as nearing its end, aligning with broader expectations for macroeconomic recovery across the region.

Market sentiment is driven less by a marked improvement in fundamentals and more by a belief in the normalization of pricing mechanisms and a return to fair value. Future interest rate movements and evolving supply-demand dynamics across asset classes are expected to influence the recovery trajectory primarily.

Logistics and Multifamily Remain Resilient, Office and Retail Showing Signs of Recovery

Over the past five years, Europe’s logistics and multifamily sectors have consistently delivered stable total returns, while office and retail sectors have underperformed by comparison. In particular, retail, which experienced negative returns after COVID-19, has recently begun to show signs of a turnaround.

According to PMA, the European office sector saw total returns decline to -12% in 2023 but is expected to rebound to 3% in 2024, suggesting a gradual recovery trajectory. Over the medium term, total returns are forecast to stabilize around 6% by 2026–2027, driven by a structural shift in return composition from capital gains to income-based returns.

The European retail sector, which posted an average total return of -6.8% from 2018 to 2022, rebounded to 5% in 2024, marking its first notable recovery in five years.

Over the same period, the logistics sector maintained a robust average total return of 10.7%. Following a brief correction in 2023, the industry is expected to deliver 5% in 2024 and approximately 8% annually through 2025–2027. With both capital value recovery and rental growth contributing to performance, logistics stands out as a defensive, income-generating asset class.

Multifamily assets in Europe also remain relatively stable, having entered a recovery phase after bottoming out in 2023. From 2025 onward, annual total returns will reach 6%, reinforcing the sector’s appeal for long-term portfolios focused on capital preservation and steady rental income.

The shift in Investment Allocation by Sector and Geography

Investment activity in Europe’s commercial real estate market continues to concentrate in the UK, Germany, and France, with retail and logistics gaining more significant portfolio share. As of 2024, these three countries account for 56% of total transaction volume, with the UK at 28%, Germany at 16%, and France at 12%.

Sector-wise, office transactions have declined from 59% in 2020 to 36% in 2024, while retail has grown from 13% to 25% and logistics from 13% to 19%, indicating a diversification trend in sector allocation.

Retail assets, which had already undergone repricing before the pandemic due to the rise of e-commerce, are now increasingly viewed as opportunistic plays, especially for distressed-asset investors. In contrast, the logistics sector continues to benefit from secular e-commerce growth, further enhancing its investment appeal.

Signs of recovery are also emerging in cross-border capital flows. Foreign investment in European commercial real estate rose 27% year-over-year to USD 31 billion in 2024. Although still below historical averages, the uptick indicates a gradually improving sentiment among international investors.

UK CRE Market: Leading the Recovery Amid Deepening Sectoral Polarization

In 2024, the UK commercial real estate (CRE) market posted a notable recovery, with total transaction volume reaching approximately USD 19.6 billion—up 19% year-over-year—making it one of the few European markets showing positive momentum. However, a sectoral breakdown reveals diverging trends. While transaction volumes declined across core segments such as office, logistics, and multifamily, activity in retail and data centers increased.

According to RCA, office assets accounted for the largest share at 23% of total volume, followed by retail (22%), logistics (20%), and multifamily (20%). Notably, more than half (53.4%) of all transactions were concentrated in London, reflecting continued investor preference for prime urban assets.

This trend is driven by expectations of capital value recovery following the peak in interest rates and a persistent preference for core locations. In contrast, regional cities such as Liverpool (4.6%), Sheffield (3.1%), and Manchester (2.7%) captured a significantly smaller share of investment activity.

Structural Demand and Capital Inflows in Logistics and Multifamily

One of the most salient trends in the UK CRE market in 2024 has been the rising share of logistics and multifamily sectors. Logistics, supported by sustained e-commerce expansion and solid fundamentals, saw its share of transaction volume increase from 7% in 2015 to 20% in 2024. Similarly, multifamily grew from 5% to 20% over the same period, fueled by persistent housing shortages and aging housing stock.

While logistics cap rates have rebounded to 6.0% in 2024, asset prices in the Southwest—including Bristol and Swindon—remain approximately 27% below pre-pandemic levels, underscoring emerging opportunities from both a yield and value perspective.

In the multifamily sector, 36 out of 38 transactions in 2023–2024 were concentrated in newly developed assets, reflecting demand for new supply and asset refresh strategies. Approximately 37% of these deals involved student housing, with prominent global asset managers expanding their exposure beyond conventional rentals to student accommodation—a segment gaining strategic interest for long-term income generation.

By Soyeong Park, Contents Writer

Data Analysis & Review by Strategic Research Division, IGIS Asset Management

────────────

-This content has been prepared for informational purposes only and is not intended to serve as a basis for investment decision-making by users. It is not created for the purpose of promoting, soliciting, or recommending financial investment products, providing investment advice, or making stock recommendations. The company makes no express or implied representations or warranties regarding the accuracy or completeness of any materials or information provided in this content. Furthermore, the company assumes no responsibility or liability for any damages or losses incurred because of investment decisions made based on this content. Potential investors shall not raise any objections in this regard.

-The above information is based on data as of March 2025 and has been prepared in compliance with applicable laws and internal control standards. The materials and information in this content are subject to change due to changes in market conditions, the stock market, interest rates, inflation, tax policies, and other social, economic, or policy-related factors. Additional risks may arise from asset price fluctuations, exchange rate volatility, credit rating downgrades, declines in real estate prices, investment performance results, or unforeseen natural disasters such as fires, floods, or pandemics. Consequently, financial (investment) products may result in partial or total loss of the principal investment, with such losses being borne by the investor. These products are not protected by the Korea Deposit Insurance Corporation under the Depositor Protection Act. Past performance does not guarantee future returns, and the results may differ from the performance at the time of content creation or in the future. Additional transaction and other costs may also apply.

-This content has not been legally submitted or registered, nor has it been approved under any applicable law. It may contain subjective opinions that do not necessarily represent the official views or statements of the company. This content is not intended to solicit, offer, or recommend the subscription, purchase, or sale of securities. Investors have the right to receive sufficient explanations from financial product sellers in accordance with applicable laws. All investment decisions should be made carefully and solely on the information provided in the securities registration statement, (preliminary) investment prospectus, and terms and conditions. Investors should make prudent decisions based on their own judgment. [IGIS Asset Management Co., Ltd. Compliance Officer Review No. 900-25-Ad-051 (April 18, 2025 – April 17, 2026)]