Market Radar Europe: Global property markets rocked by Iran conflict

Middle East Conflict Market Impacts

Amid heightened tensions back in 2012, JLL warned that a military conflict between Iran and Western powers would negatively affect UAE and other Middle Eastern real estate markets, potentially hurting the GCC region’s status as a safe haven for investors. 

Although the prediction was for a dramatic price drop were minimised compared to previous property crashes, the impact was still expected to be felt through reduced market activity and delayed purchases tensions. 

Now, 14 years later, we are seeing how this scenario will actually play out. 

On February 28th, following the launch of air strikes on Iran by the US and Israel, Iranian missile and drone attacks hit Dubai, causing casualties, damaging the Palm Jumeirah, and prompting the evacuation of the Burj Khalifa, shaking the city’s reputation for safety. 

As well as the UAE, Iranian aerial attacks also struck other countries in the region, including Israel, Saudi Arabia, Qatar, Kuwait, and others, disrupting air travel and causing a temporary pause in property deals, especially from Western and institutional investors.

Shares of major developers, such as Aldar Properties and Emaar Properties, plunged, and bond markets effectively closed to new issuances. While some developers remain optimistic, citing strong fundamentals, others acknowledge the heightened risk premium and reduced investor confidence.

The UAE’s real estate growth, largely driven by expatriates and foreign buyers, is now dependent on whether foreign demand can sustain the market amidst geopolitical instability, with forecasts predicting significant new supply in the coming years. The true impact will depend on the conflict’s duration and the recovery of investor confidence.

Outside the Gulf region, the conflict has already had a significant impact on global markets as the effective closing of the Strait of Hormuz drives up oil and gas prices. This hike risks derailing Europe’s economic recovery and increasing inflationary pressures that the European Central Bank (ECB) has struggled to control. 

The ECB is maintaining a cautious stance in response to the hostilities in the Gulf so far, monitoring the situation closely, and awaiting more clarity on how long the energy price hikes will last.

Meanwhile, in the UK, the economic fallout from the conflict is already pushing up energy bills, potentially increasing them by GBP 500 this summer, alongside rising petrol prices. 

While the government had projected gradual improvements in household finances, the latest escalation has cast doubt on these forecasts, with the risk of higher inflation and interest rates that could undo modest gains in living standards.

European Real Estate Outlook

Reinforcing the results of the latest GRI Barometer that showed investors strategising for growth in the coming year, European real estate investment volumes are projected to reach EUR 52 billion in Q1 2026, reflecting a 6% year-on-year increase, according to Savills. 

While markets like Finland, Ireland, and Poland are poised for significant growth, core markets such as Germany, the UK, and France are also expected to see increased activity, while full-year investment volumes are forecast to rise by 16% in 2026, with a further 17% growth in 2027. 

Despite elevated levels of geopolitical instability, Europe’s relative stability continues to attract investors, particularly as the region sees a shift toward value-add and core-plus strategies focused on high-quality assets. 

Real estate fundraising continues to rise, and there is optimism that Europe’s recovery will gain momentum in the coming year.

Contrasts in European Living

In a further reflection of the GRI Barometer H1 2026 results, Knight Frank crowned Madrid and Lisbon (first and third places respectively in our survey, regardless of sector) as the hottest residential real estate markets in Europe right now, with both cities expected to outperform much of the Eurozone in the next 12 to 24 months.

Strong economic performance, infrastructure investments, and high quality of life in the Iberian Peninsula are driving demand from both traditional and new international buyers, while cities like Milan, Stockholm, and emerging secondary locations - such as Bordeaux, Lausanne, and Porto - also experiencing growth due to tax policies and market corrections.

Investor interest is well represented by global platform Stoneweg’s plans to invest up to EUR 1 billion in European residential properties in 2026, focusing on flex-living and build-to-suit in Iberia, PBSA and co-living in the UK, PBSA in Italy, and potentially entering the Nordic markets, supported by strong local teams and institutional partnerships.

However, nations across Europe continue to grapple with housing crises, governments are taking varied approaches to managing private rental supply, with the UK tightening regulations, Ireland reversing restrictions, and Portugal introducing tax incentives.

Simultaneously, Greece has joined countries including Spain, Portugal, and the Netherlands in freezing new short-term rental licenses to address housing affordability, highlighting a shift in balancing tourism with the need for long-term housing supply.

Meanwhile, unconventional solutions like shared flats and zero-deposit mortgages are emerging to help young people cope with rising property prices.

In a further hit, the UK housing market slowed in January, with mortgage approvals falling to their lowest since January 2024 and lending increasing at the slowest pace since May 2025, according to Bank of England data.

At the same time, house prices rose unexpectedly and consumer borrowing surged, despite concerns that an inflationary shock from the Middle East could hinder interest rate cuts and economic growth, prompting the BoE to lower its 2026 growth forecast to 0.9%.

In the face of the UK’s worsening housing shortage, institutional investors and developers are scaling up partnerships and capital deployment across the housing market, with deals including Kennedy Wilson and CPP Investments acquiring 788 single-family rental homes for GBP 300 million, Man Group’s partnership with Vistry to forward-fund 308 affordable homes for GBP 98 million, and Barratt London selling 311 affordable homes to Legal & General.
 

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Look out for a new edition of the GRI Institute's Market Radar Europe next week!