Credit: FreepikReal Estate Regulation: Is Europe stifling its own recovery?
As 58% of leaders cite over-regulation as a drag on growth, Europe must bridge the innovation gap and untangle bureaucratic knots strangling the living sector
February 5, 2026Real Estate
Written by:Helen Richards
Key Takeaways
- Europe’s "safety-first" regulatory stance, including the EU AI Act, risks leaving the continent behind the US, which currently invests ten times more in AI infrastructure.
- While residential assets remain a top priority for global leaders, expanding rent controls and fragmented local laws are threatening the delivery of much-needed new supply.
- A pivot toward "capital nationalism" is forcing regulators to become more business-friendly to ensure domestic stability.
European real estate leaders have delivered a blunt diagnosis for the continent’s perceived stagnation: over-regulation.
A staggering 58% of polled executives at the GRI Chairmen’s Retreat Europe 2026 in St. Moritz identified an “over-regulated and hostile to risk-taking” environment as the primary reason Europe is trailing behind global peers.
During an era of profound economic, demographic, and technological transition, does Europe risk regulating itself into irrelevance?
In early 2026, the US continues to dominate, having attracted over USD 109 billion in private AI funding, which accounts for roughly 81% of the global total. In contrast, while the EU has overtaken China to become the second-largest magnet for private AI capital, its total of approximately USD 8 billion represents a small fraction of the US volume.
This divergence is deeply rooted in opposing regulatory strategies shaping investor risk appetite. The EU's “safety first” approach with the implementation of the EU AI Act and other binding rules like the European Green Deal provide a clear framework but are often viewed by investors as a hidden tax. Critics argue that over-regulation, particularly of open-source models, are stifling European competitiveness and slowing down the speed of execution.
Meanwhile, the US’ “innovation first” approach favours light-touch, voluntary frameworks, such as the NIST AI Risk Management Framework that grants firms greater latitude to innovate quickly, encouraging the US to become the undisputed global powerhouse for AI factories and infrastructure.
The US possesses roughly 17 times the AI supercomputing capacity of the EU. (Credit: Freepik)
The struggle to secure energy plots - land legalised specifically for its power capacity - is exacerbated by a fragmented regulatory landscape that makes achieving scale nearly impossible without deep local knowledge.
Furthermore, the EU’s revised Energy Performance of Buildings Directive (EPBD), set to be transposed into national laws by May 2026, adds yet another layer of compliance for owners, who must now navigate stricter carbon footprint declarations and digital product passports for construction materials.
Consequently, many fund managers anticipate that European equities may outperform the US in 2026, with their more attractive entry points and superior cushioning against a potential AI bubble burst.
While the US remains the only game in town for massive AI infrastructure, European firms are doubling down on applied AI in sectors like healthcare and financial services.
According to the GRI Chairmen's Retreat Europe 2026 poll, 55% of global leaders maintain that residential should be an allocation priority considering the structural demand. However, this comes with a clear warning from real estate leaders against the potential of overregulation and increasingly fragmented local laws capping returns.
Ireland has extended rent controls nationwide, limiting annual increases to the lower of the CPI or 2%. (Credit: Adobe Stock)
In Ireland, the landscape has shifted fundamentally with the nationwide extension of rent caps, limiting annual increases to the lower of the consumer price index (CPI) or 2%. Meanwhile, Spain’s 2023 Housing Law has matured into a highly localised system of price ceilings that target tensioned residential zones.
Germany has also extended existing rent controls (Mietpreisbremse) until the end of 2029, applicable to properties built prior to October 2014. This regulation is increasingly concentrating capital into high-quality, energy-efficient new builds or "free zones" where these caps do not apply, formalising a deep bifurcation in the market.
While these measures aim to address the chronic affordability crisis, such populist solutions often prioritise short-term political goals over the structural necessity of encouraging new supply.
Beyond the headline challenges of rent caps, investors must navigate a layered regulatory regime that has added significant operational complexity to the built environment.
In the UK, the Building Safety Act 2022 remains a formidable hurdle, particularly the stringent Gateway 3 requirements that prevent the occupation of high-risk buildings without formal regulator approval.
These bureaucratic bottlenecks frequently cause substantial delays for time-sensitive assets such as Purpose-Built Student Accommodation (PBSA), impacting the delivery speeds that international capital now demands.
From EU Taxonomy requiring new residential buildings to meet strict primary energy demand (PED) thresholds - often significantly lower than national Nearly Zero-Energy Building (NZEB) requirements - to the Biodiversity Net Gain (BNG) in the UK requiring developers to deliver a measurable 10% increase in the ecological value of a site, the challenges are never-ending.
The stakes? Failure to meet these environmental benchmarks can lead to stranded assets which lose value and rentability due to their lack of qualification for preferential sustainable financing or state subsidies.
From Portugal’s long-term rent-locking in exchange for grants to the European Commission’s efforts to harmonise construction standards, the compliance cost of operating in Europe continues to grow, requiring deep local knowledge to achieve meaningful scale.
This pressure is not just a reaction to current inefficiencies but a strategic response to global economic shifts, particularly the unpredictability in the US, which is encouraging investors from Asia and the Middle East to pivot towards European safe havens.
Overseas investors are no longer buying the market wholesale; instead, they are demanding higher efficiency and transparency, forcing local governments to address systemic bottlenecks - a trend particularly visible in areas where regulation has directly stunted growth.
Housing and industrial logistics are increasingly treated as essential social infrastructure, leading to new public-private funding models and grants that bypass traditional regulatory caps in exchange for long-term stability.
Meanwhile, as nations prioritise economic resilience and domestic stability, the rise of capital nationalism is forcing some of Europe's most rigid regulators to become more business-friendly to ensure their domestic markets remain competitive in a fractured global landscape.
If European policymakers can respond to this pressure by easing execution speeds and adopting more flexible, market-oriented reforms, the continent may yet witness the renaissance that 23% of industry leaders still believe is possible.
Read more high-level industry insights in the full GRI Chairmen’s Retreat Europe 2026 Spotlight report.
A staggering 58% of polled executives at the GRI Chairmen’s Retreat Europe 2026 in St. Moritz identified an “over-regulated and hostile to risk-taking” environment as the primary reason Europe is trailing behind global peers.
During an era of profound economic, demographic, and technological transition, does Europe risk regulating itself into irrelevance?
The Innovation Gap
This regulatory burden is most acutely felt in the divergence between European and American markets, and is particularly evident in the technology sector, where the US is currently investing more than ten times more in artificial intelligence than the EU, and possesses roughly 17 times the AI supercomputing capacity of the EU.In early 2026, the US continues to dominate, having attracted over USD 109 billion in private AI funding, which accounts for roughly 81% of the global total. In contrast, while the EU has overtaken China to become the second-largest magnet for private AI capital, its total of approximately USD 8 billion represents a small fraction of the US volume.
This divergence is deeply rooted in opposing regulatory strategies shaping investor risk appetite. The EU's “safety first” approach with the implementation of the EU AI Act and other binding rules like the European Green Deal provide a clear framework but are often viewed by investors as a hidden tax. Critics argue that over-regulation, particularly of open-source models, are stifling European competitiveness and slowing down the speed of execution.
Meanwhile, the US’ “innovation first” approach favours light-touch, voluntary frameworks, such as the NIST AI Risk Management Framework that grants firms greater latitude to innovate quickly, encouraging the US to become the undisputed global powerhouse for AI factories and infrastructure.
The US possesses roughly 17 times the AI supercomputing capacity of the EU. (Credit: Freepik)Data Centres
The data centre asset class serves as a stark indictment of Europe’s lagging digital infrastructure market. Despite a projected threefold increase in power demand by 2030, European developers face grid connectivity lead times as long as 15 years in established markets like Frankfurt.The struggle to secure energy plots - land legalised specifically for its power capacity - is exacerbated by a fragmented regulatory landscape that makes achieving scale nearly impossible without deep local knowledge.
Furthermore, the EU’s revised Energy Performance of Buildings Directive (EPBD), set to be transposed into national laws by May 2026, adds yet another layer of compliance for owners, who must now navigate stricter carbon footprint declarations and digital product passports for construction materials.
AI Bubble Risk
The intense concentration of capital in US technology indices has pushed valuations beyond dot-com era peaks. With price-to-sales ratios now exceeding 10x, some investors are viewing this trend as a significant systemic risk.Consequently, many fund managers anticipate that European equities may outperform the US in 2026, with their more attractive entry points and superior cushioning against a potential AI bubble burst.
While the US remains the only game in town for massive AI infrastructure, European firms are doubling down on applied AI in sectors like healthcare and financial services.
The Living Sector
The European living sector - encompassing rental housing, student accommodation, and senior living - has emerged as one of investors’ preferred real estate asset classes, considering its defensive quality amid economic volatility. Yet, it remains the primary battleground for regulatory intervention.According to the GRI Chairmen's Retreat Europe 2026 poll, 55% of global leaders maintain that residential should be an allocation priority considering the structural demand. However, this comes with a clear warning from real estate leaders against the potential of overregulation and increasingly fragmented local laws capping returns.
Ireland has extended rent controls nationwide, limiting annual increases to the lower of the CPI or 2%. (Credit: Adobe Stock)Rent Controls
2026 represents a definitive watershed for the European private rented sector (PRS), as major economies transition from temporary interventions to permanent national frameworks, particularly evident in the expanding reach of rent controls.In Ireland, the landscape has shifted fundamentally with the nationwide extension of rent caps, limiting annual increases to the lower of the consumer price index (CPI) or 2%. Meanwhile, Spain’s 2023 Housing Law has matured into a highly localised system of price ceilings that target tensioned residential zones.
Germany has also extended existing rent controls (Mietpreisbremse) until the end of 2029, applicable to properties built prior to October 2014. This regulation is increasingly concentrating capital into high-quality, energy-efficient new builds or "free zones" where these caps do not apply, formalising a deep bifurcation in the market.
While these measures aim to address the chronic affordability crisis, such populist solutions often prioritise short-term political goals over the structural necessity of encouraging new supply.
Operational Complexity
Contending with higher inflation and soaring construction costs, real estate investors are pivoting away from legacy assets towards higher-margin opportunistic development. While these higher returns are compelling, they are increasingly contingent on navigating a dense and often restrictive thicket of European regulation.Beyond the headline challenges of rent caps, investors must navigate a layered regulatory regime that has added significant operational complexity to the built environment.
In the UK, the Building Safety Act 2022 remains a formidable hurdle, particularly the stringent Gateway 3 requirements that prevent the occupation of high-risk buildings without formal regulator approval.
These bureaucratic bottlenecks frequently cause substantial delays for time-sensitive assets such as Purpose-Built Student Accommodation (PBSA), impacting the delivery speeds that international capital now demands.
ESG Compliance
Furthermore, as sustainability transitions from a voluntary discussion point to a mandatory prerequisite, the tick box exercise of environmental regulation deepens in complexity.From EU Taxonomy requiring new residential buildings to meet strict primary energy demand (PED) thresholds - often significantly lower than national Nearly Zero-Energy Building (NZEB) requirements - to the Biodiversity Net Gain (BNG) in the UK requiring developers to deliver a measurable 10% increase in the ecological value of a site, the challenges are never-ending.
The stakes? Failure to meet these environmental benchmarks can lead to stranded assets which lose value and rentability due to their lack of qualification for preferential sustainable financing or state subsidies.
From Portugal’s long-term rent-locking in exchange for grants to the European Commission’s efforts to harmonise construction standards, the compliance cost of operating in Europe continues to grow, requiring deep local knowledge to achieve meaningful scale.
The rise of capital nationalism is forcing some of Europe's most rigid regulators to become more business-friendly. (Credit: Adobe Stock)
Pressure for Reform
There is a glimmer of hope as the return of international capital is beginning to drive constructive pressure for policy reform.This pressure is not just a reaction to current inefficiencies but a strategic response to global economic shifts, particularly the unpredictability in the US, which is encouraging investors from Asia and the Middle East to pivot towards European safe havens.
Overseas investors are no longer buying the market wholesale; instead, they are demanding higher efficiency and transparency, forcing local governments to address systemic bottlenecks - a trend particularly visible in areas where regulation has directly stunted growth.
The Resilience Pivot
This reformist energy is part of a broader shift from a world optimised for efficiency to one prioritising resilience. As governments seek to build economic and security autonomy - particularly in defence, energy, and AI - they are beginning to view the private real estate sector as a strategic partner rather than just a source of tax revenue.Housing and industrial logistics are increasingly treated as essential social infrastructure, leading to new public-private funding models and grants that bypass traditional regulatory caps in exchange for long-term stability.
Meanwhile, as nations prioritise economic resilience and domestic stability, the rise of capital nationalism is forcing some of Europe's most rigid regulators to become more business-friendly to ensure their domestic markets remain competitive in a fractured global landscape.
If European policymakers can respond to this pressure by easing execution speeds and adopting more flexible, market-oriented reforms, the continent may yet witness the renaissance that 23% of industry leaders still believe is possible.
Read more high-level industry insights in the full GRI Chairmen’s Retreat Europe 2026 Spotlight report.