Market Radar Europe: Real Estate Momentum, Housing Woes, and Life Sciences Expansion

Optimistic RE Outlook for Europe

The European real estate market is showing signs of cautious optimism as we push deeper into 2026, building on a foundation of improved liquidity, stronger balance sheets, and a more predictable interest rate environment. 

Corroborating the results of the GRI Chairmen’s Retreat 2026 survey, ING reports a positive outlook for the year, particularly in the residential and income-producing sectors, where transaction volumes are expected to rise. The logistics and retail markets are stabilising, and rental growth is forecasted at 3-4%, with property values beginning to recover. 

Although challenges such as high leverage levels and interest coverage pressures persist, the market remains on track for gradual recovery, driven by solid fundamentals and improved investor confidence.

Commercial Considerations

Investment activity in the commercial sector surged in late 2025, according to CBRE, reaching EUR 86.1 billion in the final quarter and marking the highest levels since the ECB's interest rate hikes in 2022. 

The overall market for the year grew by 13%, with notable rebounds in previously struggling sectors, including retail. This resurgence can be attributed to improved investor sentiment and a competitive lending market, suggesting the long recovery from high interest rates may finally be taking hold.

Cushman & Wakefield's DNA of Real Estate Q4 2025 report on CRE markets noted that the office sector, especially in cities like Newcastle and Milan, saw positive rental growth as retail properties - particularly in prime high-street locations - demonstrated resilience, with cities such as Bucharest and Budapest experiencing significant growth. 

Meanwhile, logistics markets remained solid, although slower growth was observed in some areas. The broad-based stability in rental values, yields, and ongoing demand for key asset classes points to a market adapting well to new economic conditions.

Development Drivers

Cross-border investment is also expected to rise, particularly from Asian and North American investors, attracted by better asset pricing transparency and stronger risk-return profiles. The focus on sustainable and digitally integrated properties, coupled with stricter EU regulations on energy efficiency, is transforming the market. 

Additionally, PropTech development is accelerating the shift from offline to online transactions, and investors who embrace sustainability and digitalisation are likely to benefit from long-term growth.

In terms of specific country developments, Portugal is seeing a surge in investment, with Covivio’s EUR 31.6 million acquisition of a hotel in Porto reflecting growing interest in the city’s Bonfim neighbourhood. 

In the UK, there has been a significant rise in office refurbishments and hotel developments, while in Germany, Fortress Investment Group's EUR 500 million commitment to residential investments signals growing demand for stable property investments. 

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European Living Investment Intentions

Further confirmation of the GRI Chairmen’s Retreat 2026 survey comes from CBRE in their recent European Investor Intentions Survey, which reveals that the living sector continues to dominate investor preferences. 

For the second consecutive year, housing remains the most favoured sector, ahead of logistics, due to structural supply constraints and resilient occupier demand. This strong demand, particularly in urban centres, is expected to support significant rental growth. As a result, investors are increasingly targeting the sector, exploring core-plus and value-add strategies to capitalise on attractive price entry points. 

With 89% of respondents expecting stable or increased purchasing activity in 2026, confidence in the sector is on the rise, reinforcing the living sector’s status as the largest share of investment.

Lapping Up Luxury

Milan has emerged as Europe’s most dynamic luxury housing market, with a significant surge in demand ahead of the Winter Olympics. The city’s luxury real estate market saw a 38% increase in prices between 2020 and 2025, driven by Milan’s ongoing economic power and foreign interest - particularly from HNWIs in the UK, Sweden, and the Netherlands.

Portugal’s luxury market is also booming, with strong demand, limited supply, and increasing interest in branded residences, especially in Lisbon, Porto, and the Algarve. Prices surged by 14.5% in 2024 and continue to rise in 2025, with international buyers from the UK, US, and Germany driving the market forward. 

Spain, and Madrid in particular, has emerged as another leading luxury destination in Europe, with prime locations like Salamanca and Chamartín attracting affluent buyers due to its competitive pricing, strong economic fundamentals, and growing international corporate presence. 

However, Paris faces significant challenges, as high wealth taxes, anti-wealth sentiment, and a tough political climate have led to decreased transaction volumes and longer selling times for luxury properties.

Many wealthy buyers are now seeking alternatives in cities with more favourable tax policies, such as London and Geneva, causing Paris’s luxury market to underperform compared to other European capitals.

Rental Reckoning

Despite positive investor sentiment for the living sector, a potential hurdle emerges across Europe as governments tighten regulations in residential rental markets, reshaping the investment landscape. In the UK, the Renters' Rights Act 2025 signals a shift toward greater tenant protections, banning "no-fault" evictions and limiting rent bidding. 

Meanwhile, countries including Ireland and Italy have introduced stricter rent controls and longer tenancy durations. Although these measures aim to provide tenant security, they also present challenges for investors. 

Nonetheless, the regulatory environment is fostering opportunities in markets where stable frameworks prevail, such as Poland, where more flexibility in rental regulations exists.

Addressing Affordability

Affordable housing continues to be a pressing issue across Europe, with many countries grappling with skyrocketing property prices and increasing demand. 

In Portugal, housing prices surged by 20% in 2025, making homeownership increasingly difficult for local residents. The rise in rental prices has mirrored this growth, with rents becoming unaffordable for many, particularly first-time buyers. 

In Spain, a similar issue has emerged, where rent controls, meant to alleviate affordability, have exacerbated the crisis, leading to reduced supply and higher rents. 

The Netherlands is also facing a housing shortage, worsened by regulatory changes, causing rental demand to skyrocket in cities like Amsterdam and Rotterdam.

Although the European Commission (EC) has announced schemes such as the Affordable Housing Initiative, aimed at increasing supply and improving building efficiency, the ongoing challenges require stronger coordination between EU, national, and local authorities, alongside innovative financing models and public-private partnerships.

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Europe’s Life Sciences Growth

The global life sciences real estate market showed a mixed performance in 2025. While VC activity saw a slight increase, the IPO market faced a downturn, and M&As accelerated, driven by pharmaceutical companies aiming to strengthen their pipelines. 

Despite rising investor sentiment in the latter half of the year, the recovery in life sciences CRE is expected to lag, with elevated vacancy rates and subdued leasing demand. Companies remain cautious in hiring and expansion, which continues to impact the sector’s recovery.

In Europe, the life sciences market is poised for growth, supported by the EC’s Life Sciences Strategy, which aims to make Europe the global leader in the sector by 2030. Key initiatives focus on boosting research, innovation, and market access, including the promotion of the "One Health" concept and better use of data and artificial intelligence. 

Although challenges such as legal uncertainties and investment needs persist, the strategy’s success will depend on balancing innovation with regulatory frameworks and investment support. This ambitious plan seeks to solidify Europe’s position in the global life sciences race.

Life Sciences in Spain

One of the most promising European hubs is Barcelona, which is rapidly emerging as a key destination for life sciences companies, particularly those from the US. 

With over 1,400 life sciences companies and a robust ecosystem of research centres, hospitals, and digital health companies, Barcelona offers a compelling cost-and-talent equation.

The city’s integration of biotech and data-driven personalised medicine, along with major infrastructure projects like the Clínic-University of Barcelona Health Campus, positions it at the forefront of European life sciences. 

Barcelona’s appeal is further strengthened by its lower operational costs and highly skilled workforce, making it an attractive option for life sciences firms seeking scalability and innovation in Europe.
 

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