Market Radar Europe: Recession fears and rising risk across real estate sectors

War Deepens Market Strains

A more unstable geopolitical backdrop is starting to ripple across energy, markets, and investment decisions, with executives and investors increasingly focused on second-order effects rather than just the immediate shock. 

In an interview with the BBC, BlackRock chief executive Larry Fink warned that if tensions involving Iran keep oil prices above USD 100 and closer to USD 150 per barrel, the world could face a sharp recession, even if today’s financial system is far stronger than it was in 2007-08. 

Meanwhile, Australia and the EU have struck a broad free trade deal that reflects the same strategic mood, with both sides pushing closer co-operation on tariffs, defence, and critical minerals in response to a more uncertain global economy. 

This uncertainty is also reshaping how households, companies, and markets respond to energy risk, with Octopus Energy CEO Greg Jackson telling the BBC that demand for green technology has jumped since the war began.

Solar panel sales went up 50%, heat pump sales by 30%, and electric vehicle-related enquiries also rose sharply as households try to reduce exposure to fossil fuel price shocks and brace for higher bills. 

In equity markets, strategists remain broadly constructive on Europe despite the conflict, arguing that the oil spike and war risk are still seen as temporary enough not to derail the wider recovery, although investors have become more defensive in the near term.

Gulf real estate markets have of course been hit particularly hard - especially on the debt side - with parts of Dubai’s property sector already trading at distressed levels and funding pressure spreading beyond the weakest names. 

The biggest blow is that the bond market has effectively shut just as major refinancing needs approach, leaving developers more exposed to a prolonged conflict, higher costs, and weaker investor confidence.

► Get insights on the impact of the conflict on Gulf real estate markets online or in person on 15th April at GRI Global Capital Connectors 2026 

Construction Cost Concerns

Across real assets, the pressure is increasingly showing up through costs, procurement, and execution rather than a blanket collapse in activity. 

European construction is moving beyond the broad post-pandemic inflation shock into a more selective risk environment shaped by power availability, metals volatility, carbon compliance, and grid connection delays, especially for energy-intensive projects. 

In Central and Eastern Europe (CEE), developers say rising construction costs and land acquisition are now bigger concerns than financing, with activity holding up best in sectors such as residential, build-to-rent, industrial, data centres, and green energy infrastructure. 

The broader pattern is that capital has not disappeared, but the margin for error is narrowing, and both developers and investors are having to price energy exposure, supply chain resilience, and delivery risk far more carefully than before. 

UK Market Stays Selective

The UK real estate market is showing a split between structural caution and renewed strategic activity, with The Drooms Real Estate Trends Report 2026 suggesting that across Europe the market is stabilising after a long period of rising complexity.

However, the UK remains the clear outlier, with average transaction times stretching to a record 577 days, pointing to a market where deals are still happening, but only through longer due diligence, more selective underwriting, and tighter financing conditions. 

Investor appetite has not disappeared - most still expect to be more active in 2026 than in 2025 - but capital is being deployed more carefully, with residential and logistics still leading, infrastructure and data centres gaining momentum, and offices remaining firmly out of favour.

At the policy level, the government is trying to respond to the housing shortage with a more interventionist growth agenda built around scale, identifying seven major locations for a new generation of towns, each expected to deliver at least 10,000 homes, linking housebuilding more explicitly to transport, jobs, infrastructure, and green space. 

The selected sites include places such as Tempsford, Leeds South Bank, Manchester Victoria North, Thamesmead, and Milton Keynes, while an additional GBP 234 million has been allocated to help mayoral authorities unlock 8,000 homes on brownfield land. 

The message is that housing delivery is now being framed not just as a supply issue, but as part of a broader economic and planning reform strategy.

Against that backdrop, deal activity shows that investors are still willing to back scale, income, and specialist sectors despite the slower market. LondonMetric and Schroder REIT have moved into the process to acquire Picton Property Income, underlining the consolidation theme in the listed property space, while LondonMetric has also completed a GBP 1.5 billion refinancing that strengthens its balance sheet. 

Elsewhere, BP has signed for 192,000 square feet at Timber Square for its new global headquarters, Redical has completed its acquisition of Merry Hill, and major schemes continue to move ahead across life sciences, residential, and student housing, including The Crown Estate’s Oxford lab project, City & Country’s plans for Legal & General’s former headquarters, Harbert’s Liverpool PBSA acquisition, and Landmark’s Birmingham PBSA approval. 

Together, those moves suggest that while the UK market remains slow and financing-led, capital is still flowing to larger platforms, operational sectors, and development opportunities with a clear long-term story.

Defence Drives Logistics Demand

Europe’s logistics market is starting to absorb a new strategic theme: defence. 

Research from Patrizia argues that the surge in European defence spending could help drive the next growth phase for smart logistics real estate by shifting demand towards military manufacturing clusters, transport corridors, energy hubs, and NATO-border markets. 

The opportunity is not just about more warehouse demand, but about a different type of asset - higher-specification buildings, repurposed mid-box facilities, bespoke production space, and longer lease structures suited to defence and industrial occupiers. 

This thesis is reinforced by the growing argument that Europe can no longer separate civilian and military logistics, with dual-use networks for transport, storage, and supply increasingly seen as essential to resilience, operational readiness, and secure energy distribution. 

Investors are already positioning around that broader logistics and infrastructure story across Europe. H.I.G. Realty completed a USD 1.6 billion recapitalisation of Ella Resorts and OB Streem, giving both platforms more room to expand, while Hines and Burstone have launched a pan-European light industrial joint venture that has already begun acquiring assets in Germany and the Netherlands. 

In the listed market, WDP has continued to reshape its portfolio through acquisitions and disposals, suggesting that appetite remains for well-located logistics stock even in a more volatile backdrop. 

The wider pattern is that capital is still flowing into logistics, but with a stronger focus on operational resilience, asset quality, and strategic locations linked to manufacturing, ports, and energy infrastructure. 

That same theme is visible in local markets. In the UK, QuadReal has made a major bet on self-storage through a GBP 280 million portfolio acquisition and fresh capital for further expansion, while Hines has added four more mid-box industrial assets as part of its core-plus strategy. 

In Germany, Kajima has formed a joint venture around Mercedes-Benz’s logistics hub in Bischweier, and Chancerygate has entered the market with a Berlin base and an urban logistics focus. 

In CEE, Poland continues to stand out for strong industrial fundamentals, with resilient occupier demand and limited supply, while Panattoni’s 38,000 square metre lease with Sellpy in Wrocław points to continued momentum in modern distribution space. 

Taken together, these deals point to a European logistics market that is no longer driven only by e-commerce and traditional supply chains, but increasingly by defence, energy security, and the need for more flexible, technology-enabled infrastructure. 

► Join top real estate leaders at the upcoming GRI Pan-European CRE Logistics Deals & Investment Strategies roundtable, co-hosted by Dentons, on 12th May in London
 

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