► Opening Talkshow

Macro forces, capital flows, and the deals that will define 2026

Economic Resilience and Europe as a Safe Haven

The European real estate market has emerged as a relative safe haven for 2026 amidst global geopolitical uncertainty. With interest rates and inflation stabilising or trending downwards, the environment for investment has become increasingly positive. 

European valuations have largely troughed, offering a true value play with more attractive property yield spreads compared to the United States. This stability, combined with the inherent appeal of European cities, is expected to continue driving demand for real estate capital and development.

The Dual Impact of Artificial Intelligence (AI)

AI is both a primary accelerant and a significant long-term disruptor for the real estate industry. In the short term, AI is driving growth in specific sectors such as data centres and helping to improve operational margins in student accommodation and self-storage by lowering operating expenses.

However, the long-term impact on the office sector and traditional employment within the real estate industry itself is prompting caution among market players. While AI provides a current tailwind for productivity, its ability to replace human intelligence at scale remains a profound uncertainty that requires a humble and adaptive investment strategy.

Shifting Capital Flows

There is a noticeable pivot in capital allocation, with a move from debt-heavy strategies back towards equity as financing costs decrease and returns become more competitive. Investors are increasingly targeting thematic, operationally-intensive assets such as living sectors due to strong demographic tailwinds.

Furthermore, necessity-based retail, such as retail parks and grocery-anchored centres, has seen a resurgence in interest due to its repriced valuations and resilient, income-driven returns.

Mega-Deals and Consolidation

2026 is expected to be defined by large-scale transactions driven by recapitalisations and industry consolidation. Following several years of challenging capital raising, many portfolios are reaching a point where investors require liquidity, leading to an increase in recapitalisation volume.

Massive infrastructure and data centre projects, such as the multi-billion-euro investments in the UK and across the continent, are setting new benchmarks for deal size. 

Germany’s real estate market is also likened to a sleeping behemoth for 2026, under the expectation of significant repricing in the country’s residential sector, believed to consequently trigger renewed activity.

Geopolitical Strategy & Sustainability

Geopolitical shifts are actively redirecting capital, with some global investors pausing US allocations in favour of European opportunities. This is complemented by a growing focus on national resilience, where private capital is increasingly being sought for public-private partnerships in military logistics, barracks, and infrastructure.

Finally, sustainability remains a critical differentiator in the European market. Unlike other regions where ESG may have become politicised, in Europe, meeting rigorous environmental and social criteria is often the first step in the underwriting process and a prerequisite for entering the room with major institutional allocators.

► Beyond Borders

Timing, cross-border conviction, and global fundraising strategies

Income-Oriented and Opportunistic Capital

Investor sentiment has shifted significantly with a clear transition from defensive to more aggressive strategies. While Limited Partners (LPs) initially sought the security of income-producing assets to mitigate risk, there is now a growing appetite for value-add and opportunistic development as the recovery cycle begins.

Investors are increasingly looking for a seed portfolio to provide immediate yield, which serves as a starting point before they commit to higher-returning, higher-yielding credit or development opportunities.

Europe’s Growing Appeal

Europe is currently viewed as a more attractive investment destination compared to the US, potentially leading the global recovery due to faster valuation adjustments. Capital is flowing into the continent from diverse global sources, including North America, the Middle East, Japan, and Australia.

This trend is bolstered by the perception of Europe as a source of relative stability and sensible value-adjusted opportunities amidst global volatility.

Sector and Geographic Preferences

While "beds and sheds" - residential and logistics - remain popular, there is renewed interest in data centres, as well as opportunities arising from market distress in the French office market.

Investors are specifically targeting well-located Central Business District (CBD) offices in Paris where valuations have dropped significantly, offering attractive entry points for repurposing and value creation.

Conversely, the Gulf region is seeing a trend where local capital is being repatriated to fund massive domestic mega-projects rather than traditional European acquisitions.

Fundraising Structures

The fundraising environment remains complex, with blind pools becoming increasingly difficult to market without a seeded portfolio of assets. LPs are demanding more control, often favouring co-investment opportunities over traditional fund structures, though this presents a challenge for managers due to downward pressure on fees.

Additionally, looming European regulations regarding leverage limitations for non-bank debt funds are causing concern, potentially impacting the growth of private credit which has recently filled the void left by retrenching commercial banks.

Team Alignment and Track Record

There is a wide consensus among real estate market players regarding the necessity for strong alignment between investment teams and their LPs. Beyond the reputation of the firm, investors now prioritise the specific commitment of the team members to ensure they share the same risks as the capital providers.

This focus on "best-in-class" strategies and proven expertise is essential for navigating a relationship-driven market, particularly in regions like the Middle East where onboarding can take several years of trust-building.

► UK Deals

Where is the UK pipeline still attracting capital?

Market Sentiment

While the UK has faced a period of significant volatility, there is a growing sense of optimism as 2026 begins. Interest rates are trending in a favourable direction, which has started to increase appetite among both investors and borrowers, shifting the environment towards a borrower's market where competitive debt packages can be secured.

Despite these positive signs, deal flow remains more challenging to source in the UK compared to Western Europe, and investors are still grappling with the difficulty of determining terminal cap rates for three-to-five-year business plans.

The Residential Sector

Despite challenges such as the Building Safety Act, increased construction costs, and the removal of non-dom tax rules, London continues to attract significant international demand due to its status as a global lifestyle hub.

The market is seeing a plateauing of construction costs and a narrowing gap between the cost of renting and the cost of buying, which is encouraging local tenants to transition into homeownership.

International investment remains a primary driver, with Middle Eastern buyers now accounting for approximately 50% of demand in certain residential segments.

Operational Efficiency

AI is becoming a critical tool for improving the feasibility of operationally intensive asset classes, such as the living sector. Investors are deploying AI-driven solutions, including in-house chatbots and streamlined management systems, to increase administrative efficiency and reduce operating expenses.

While AI is not yet expected to replace physical roles like cleaning or maintenance in the near term, it is significantly enhancing the ability to manage multiple assets and connect different verticals, such as wellness, gyms, and hotels, through integrated data.

Living and Alternative Assets

The living sector - encompassing build-to-rent (BTR), student housing, and co-living - is viewed as one of the safest and most consistent investment areas. Investors are increasingly targeting flexible models that cater to modern requirements for convenience and human connection in urban environments.

While some universities face financial pressures, there is still significant capital inflow into the student accommodation space, with investors prioritising assets that offer clear yield spreads and operational scale.

► Germany

Bringing capital stability back or tough test ahead?

Market Sentiment and Timing

There is a prevailing sense of optimism that Germany remains a premier destination for investment, currently ranking as the second most preferred global market. While the domestic investor base and local banks have recently stepped aside, this creates a significant opening for new capital to enter at more attractive pricing levels.

The stabilisation of interest rates and inflation falling below target are seen as essential macro indicators that the check-box for a market recovery is being met, making the current window an ideal time for entry.

Liquidity and the Debt Market

The debt market in Germany is showing signs of a robust return, with lenders offering a wide variety of options for executable deals. However, a significant gap remains regarding legacy debt and over-leveraged assets where existing lenders are often extending terms rather than forcing restructurings.

While alternative financing and private credit are capturing more market share due to increasing banking regulations, the lack of pressure from senior lenders to clear books is currently slowing the flow of distressed opportunities into the open market.

Residential Undersupply

The German residential sector is characterised by a severe supply-deman balance, with a shortage of hundreds of thousands of units in Germany's top seven cities. Investors are increasingly pivoting towards new-build developments as these projects are often exempt from certain rent-control regulations that impact standing assets.

Despite high demand and core buyer interest, some institutional investors remain hesitant to commit to large-scale strategies, though the window of opportunity is expected to be short as land prices begin to rise again.

The Upside of Light Industrial

Light industrial assets are emerging as a highly favoured niche due to their versatile use and proximity to dense population centres. This segment is viewed as particularly resilient because it supports the domestic economy rather than relying on volatile export markets.

While individual ticket sizes are often small, making them difficult for large investors to finance one-on-one, the sector is seeing significant activity from aggregators who buy granular portfolios at high yields with the intent to recapitalise them through secondary markets.

Regulatory Hurdles

A primary concern for developers is the sluggish nature of the German planning and permitting process, which is often hindered by resource constraints within local agencies. 

Although political initiatives such as the Bauturbo aim to accelerate approvals to a three-month window, the operational reality frequently involves delays due to staffing shortages and complex zoning requirements.

Despite these frustrations, some argue that these high barriers to entry actually protect the value of existing assets by preventing the sudden oversupply common in more deregulated markets.

► Investments Opportunities in Spain

A strategic piece in Europe's real estate chess match

Shifting Investor Profiles

The Spanish investment landscape has seen a significant influx of capital from new global sources, specifically sovereign wealth and pension funds from North America and South Korea.

There is a growing fatigue with mega funds and pan-European vehicles that lack specialised regional teams. Investors are increasingly prioritising local managers who can offer granular market knowledge and access to sweet spot equity tickets ranging from EUR 30 million to EUR 50 million, which are often overlooked by larger institutional players.

Growth Sectors and Value-Add Strategies

Investment activity is diversifying beyond traditional assets into specialised urban needs such as healthcare, education, and senior living.

Significant opportunities exist in the privatisation of residential portfolios, where BTR products are being converted into individual units for sale at valuations roughly 25% below market levels. 

While logistics remains highly desirable, achieving returns above 15% in the current Spanish market is increasingly difficult, leading investors to seek higher risk-adjusted returns in fragmented hospitality markets in Greece and Italy.

Data Centre Infrastructure

Spain is emerging as a critical hub for data centres due to its extensive fibre optic network, submarine cable connections, and some of the lowest renewable energy costs in Europe. However, the sector faces a significant bottleneck regarding power grid connectivity, with some developers facing delays until 2028 for necessary electrical connections.

Due to the massive capital requirements and long development cycles of hyperscale projects, many managers are adopting opportunistic strategies focused on securing power land and pre-leasing capacity before seeking an exit.

Tourism Pressure

The rapid growth of the tourism and hospitality sectors is raising serious concerns regarding social sustainability and local quality of life. In popular areas such as the Balearic Islands and Madrid, the proliferation of short-term holiday rentals has displaced essential workers and residents, leading to calls for stricter government regulation.

The industry must reconsider historical practices, such as converting staff accommodation into guest rooms, to ensure the long-term viability of these destinations.

Economic Resilience and Regional Competitiveness

Despite broader European economic volatility, Spain and Portugal are viewed as safe havens for capital. While traditional markets like Germany and France have experienced valuation decreases of up to 20%, Spanish valuations have remained remarkably resilient, only dipping by roughly 3%.

This stability is bolstered by strong demographic fundamentals, with four Spanish cities ranking among the top ten fastest-growing urban centres in Europe through 2040, and the results of the GRI Barometer revealing that Madrid is the top investment destination for the coming year. 

Consequently, the market remains highly competitive, with fundamentals expected to remain robust for at least the next five years.

► Italy’s Real Estate Market

From crossroads to comeback

Market Outlook

The Italian real estate market is receiving renewed interest from investors, with 2026 projected to be a positive year. Italy is not a beta investment destination where capital grows passively; instead, success requires creating alpha through active management and a deep understanding of local complexities.

Despite structural challenges such as difficult permitting processes and operational hurdles, the market offers high potential returns for those with a local presence and the willingness to navigate its unique landscape.

Sector Performance

Italy’s real estate market is experiencing balanced performance across various asset classes, moving beyond a historical reliance on the office sector. While offices remain a focal point - particularly in Milan, where rents are projected to grow strongly due to undersupply - other sectors like hotels, logistics, and living are showing significant maturity and liquidity.

The hotel sector remains a standout for operational investment, while the living sector is beginning to see its first major products reach the market, testing cap rates and investor appetite.

Geographical Expansion Beyond Milan

Although Milan continues to lead the market, particularly for ESG-compliant office space, there is a clear trend of capital flowing into other regions. Transaction volumes in 2025 demonstrated that the majority of activity occurred outside of Milan, driven by logistics corridors in the north-east and hotel investments in Rome and resort locations such as Lake Como and Tuscany.

While Milan remains the primary gateway for international office capital, ranking third in the latest GRI Barometer, Italy's broader geography offers diverse opportunities in secondary markets and specialised sectors such as student housing in cities like Bologna or even Messina.

Structural Investment Efficiency

The ease and efficiency of investing in Italy do not improve at a steady, predictable rate as a deal increases in size. Instead, there is a sharp jump in efficiency once a transaction hits a specific size threshold.

For large-scale transactions, the use of SGR (Società di Gestione del Risparmio - regulated asset management companies) vehicles and securitisation structures makes Italy one of the most tax-efficient jurisdictions in Europe. 

However, these same structures impose fixed costs that make smaller deals, typically those below EUR 75 million, highly inefficient for international investors. Further reforms are needed to simplify cadastral conformity and technical analysis to make the market more accessible and less reliant on complex workarounds.

The Role of Capital Sources and Debt

The landscape of capital in Italy is evolving, with family offices increasingly dominating core investments as domestic pension funds remain less active. Furthermore, a shift in corporate financing has seen businesses turn to real estate, such as sale-and-leaseback transactions, as an alternative to restrictive bank lending.

While there is ample debt availability from various funds, a potential risk for the remainder of 2026 is a wait-and-see approach from buyers and sellers hoping for better market conditions, which could stall transaction momentum despite healthy underlying fundamentals.

► CEE Allocation Changes

New capital movement and what’s next?

Retail and Office Recovery

There is a notable shift in investment interest back towards the retail sector, particularly in the Czech Republic where major shopping centres have recently changed hands.

While retail was previously viewed as a stranded or distressed asset class following the pandemic, owners can now demonstrate a stable post-COVID track record as tenants have successfully adapted to "bricks and clicks" models.

Investment activity in the office sector has also remained relatively resilient in the Czech Republic, maintaining cap rates around the 6% mark, even as international capital remains somewhat constrained across the broader region.

Local Capital

Local capital has become the primary driver of the CEE real estate market, accounting for approximately 85% of total market activity. This trend is largely due to international capital remaining cautious, whereas local investors and Czech open-ended funds have been aggressively acquiring assets.

These domestic players often have a better understanding of the local landscape and are willing to pay sharper prices or take on specific risks that international funds currently avoid, which has helped maintain market liquidity despite global economic pressures.

Residential Sectors

The Private Rented Sector (PRS) is seeing significant interest in Poland, though it remains less developed in the Czech Republic due to a lack of finished institutional stock.

In Poland, developers are increasingly refurbishing old city-centre buildings into high-end apartments because of a lack of available plots and a trend of younger generations moving back into urban hubs.

Although some developers temporarily shifted units from sale to rent due to mortgage subsidy changes, the long-term demand for urban living remains strong, even as financing for these risky refurbishment projects proves challenging to secure.

Pricing Realism

A gap in pricing expectations exists between motivated sellers and cautious buyers, though this is beginning to narrow as refinancing pressures emerge. While many CEE owners have historically been reluctant to sell at a loss or take a hit on their valuations, the expiration of debt maturities is forcing more candid discussions.

In contrast to the American fund approach of exiting quickly at market prices, local owners have preferred to hold assets; however, the lack of bank financing for non-prime assets is gradually increasing the motivation for secondary market transactions.

Warsaw Market Outlook

The long-term value of the Warsaw market depends on its ability to establish itself as a dominant economic powerhouse and a regional hub for capital, rather than just a cost-effective back-office location.

Experts predict that prime cap rates in Warsaw will likely remain stable between 6% and 7% over the next five years, as yield compression is limited by the availability of more attractive yields in Western European markets like Spain or Italy. However, capital values could rise due to increasing rents driven by a severely restricted development pipeline and rising construction costs.

► Real Estate Refinancing and Maturing Loans

Risk, return, or default?

Market Liquidity and Borrower Power

The market is currently experiencing a surprising amount of liquidity, leading to a disconnect between predicted distress and the reality of refinancing.

Instead of widespread defaults or heavy equity injections, it has been noted that there is significant capital available from various sources, making it something of a borrower’s market for those with high-quality assets. This liquidity is largely driven by a significant increase in back leverage and senior lenders who are asset-hungry and looking to build their books.

Flexible and Non-Bank Capital

Non-bank lenders and debt funds have become pivotal in the current credit cycle, particularly for complex business plan lending where assets require repositioning.

These alternative lenders often provide more flexibility than traditional banks because they possess both debt and equity expertise, allowing them to underwrite complicated value-add projects or construction loans that banks might find too risky or administratively burdensome.

Loan Extensions

The industry has largely moved away from aggressive enforcement in favour of "amend and extend" strategies. Lenders are prioritising active dialogue and alignment of interest with borrowers rather than forcing foreclosures.

When considering extensions, lenders look for "skin in the game" from sponsors, such as additional equity injections or funded capital expenditure, to ensure that both parties are committed to a reworked business plan that maximises the asset’s value.

Lender Capability to Manage Assets

A major shift in the market structure is the presence of debt funds that are prepared to take over and operate assets if a borrower cannot fulfill the business plan. As these funds often have a lower cost basis than the original equity holder, they can sometimes effect leasing strategies or capital improvements that would be economically unfeasible for the borrower.

This "friend or foe" dynamic encourages borrowers to remain rational and transparent, as the lender is a credible operator of the collateral.

Return of Bank Lending

Traditional banks are returning to the market with cleaner balance sheets, offering the most competitive pricing which non-banks cannot match due to the banks' lower cost of capital.

However, despite the influx of capital, the market continues to show discipline regarding loan structures. Lenders are often willing to trade on pricing or certain covenants but maintain strictness on essential protections such as change of control clauses, disposal pricing, and extension tests to ensure they are lending to reputable, institutional counterparties.

► Where Smart Capital Moves

Equity repricing, JVs, and value-add returns in Europe

Resilience and Regulatory Arbitrage in Germany

The German market is ripe for buying the trough after a decade of being nearly inaccessible to value-add investors. 

The residential sector is particularly attractive due to its high regulation; while new development is stalled, investors are finding success by acquiring standing assets in top-tier cities and improving secondary stock in western Germany.

By navigating specific legislative mechanics and addressing under-rented stock, smart capital is achieving mid-teen returns with minimal market risk, as high demand continues to drive vacancy rates down even as rents are increased.

Growth Potential in Poland and Iberia

Poland is a major growth engine for Europe, outperforming many western neighbours with a projected growth rate of roughly 4.8%. The market is seeing a massive influx of Asian capital, particularly from Japan and Korea, focused on logistics and the battery supply chain.

Similarly, Spain remains a high-conviction region for residential strategies. Despite political interference in cities like Barcelona, the demand-supply imbalance is so acute that build-to-sell projects continue to outperform, supported by local banks that are eager to provide development finance and mortgages for end-users.

High-Stakes in Data Centres

Data centres represent the most significant macro trend, yet many market players warn of substantial barriers to entry and obsolescence risk. Successful strategies currently involve a powered land approach - securing connectivity and power capacity before selling to hyperscalers.

This sector requires massive capital and technical competence, often involving the construction of private power stations to satisfy grid requirements. While the potential for three-to-four-times multiples exists, the rapid evolution of AI hardware means that infrastructure built only five years ago can quickly become obsolete.

From Debt Back to Equity

There is a gradual but discernible shift of capital moving from the debt space back into direct equity. While mezzanine lending was the preferred move over the last two years due to its protective nature, many investors are now seeking the upside of equity as inflation stabilises and interest rates soften.

This transition is being driven by a return to fundamentals where value is created through operational efficiency and asset management rather than relying on yield compression or market beta.

Strategic Conversion of Obsolete Assets

A recurring theme across London, Paris, and Warsaw is the flight to quality and the necessary conversion of obsolete office space. Millions of square metres of secondary office stock in major hubs like Ile-de-France are now non-compliant or unwanted.

Capital is moving towards brown-to-green repurposing, specifically converting these assets into various living sectors, including student housing, senior living, and affordable residential units to meet critical urban housing shortages.

► Capital Stack Realignment

How to manage risk across layers

Senior Lenders and Debt Funds

The real estate debt market is experiencing heightened competition as traditional senior lenders and debt funds vie for market share. Senior banks, particularly those with a broad European footprint, have remained active by offering competitive pricing and higher leverage on certain asset classes, such as residential portfolios.

However, debt funds have significantly increased their market presence, with some allocators reporting that debt fund activity now constitutes nearly a third of their total real estate investment. 

This competition is driving a compression in pricing across the market, forcing all players to seek more specialised or transitional assets to maintain target risk-adjusted returns.

Capital Stack and Quasi-Equity

A notable trend in recent years is the realignment of the capital stack, where debt is increasingly filling gaps traditionally occupied by equity. Due to a lack of available core equity and difficulties in achieving exits, sponsors are turning to creative structures such as preferred equity and mezzanine debt to recapitalise assets or fund ongoing capital expenditure.

This shift has pushed lenders further up the leverage curve, with some debt funds providing whole loans at 70% to 80% loan-to-value. These quasi-equity positions allow sponsors to bridge the funding gap while offering lenders outsized returns relative to standard senior debt.

The European Market

Despite the interest rate volatility seen since 2021, the current European lending environment is described as relatively benign and confident.

Unlike the United States, Europe has not experienced the same scale of drastic valuation drops, particularly in the office sector, which has kept workout and restructuring volumes low. However, certain jurisdictions like Germany remain slower due to long-term fixed-rate structures that delay the impact of the maturity wall.

Lenders are currently prioritising income stability and debt yield over speculative valuations, focusing on "beds and sheds" - residential and logistics - while remaining cautious but open to contrarian views on retail and office conversions.

Back Leverage

The availability and structuring of back leverage remain critical for debt funds to achieve double-digit returns for their investors. While more financial institutions are interested in providing back leverage, European banks face stringent regulatory hurdles, particularly under Basel III and ECB-approved internal models.

These regulations often limit a bank's ability to offer flexible or high-leverage terms, sometimes placing European lenders at a disadvantage compared to American banks that are not yet tied to the same standard models. Consequently, many debt funds rely on deep-rooted institutional relationships to secure consistent back-leverage facilities.

Market Normalisation and Equity Re-entry

The outlook for 2026 is constructive, as it is widely believed that the market may have reached the bottom of the cycle amid a significant uptick in the deal pipeline - though many of these are refinancings rather than new acquisitions.

There is a growing expectation that as yields stabilise and the bid-ask spread narrows, core and core-plus equity will return to the market.

While debt has dominated recent activity, some investors are already shifting their focus back towards opportunity funds and equity investments, anticipating that real estate fundamentals will support a return to a more traditional market cycle.

► Debt & Credit in Southern European Deals

Do we see the rise of a new debt cycle in the region?

Improving Liquidity and Market Normalisation

Market liquidity in Southern Europe has considerably improved compared to previous years, suggesting a transition away from a purely defensive stance towards a more normalised credit cycle.

Capital is becoming more readily available and spreads are tightening, which has fostered a more competitive environment for debt providers. There is a clear sense of optimism regarding the availability of funding for most asset classes, including those such as retail that were previously difficult to finance.

Growth in Development

The composition of deal pipelines in Southern Europe is shifting, with a notable increase in construction and development financing over the last several months. In Spain and Italy, development now represents a substantial portion of activity, often outpacing the demand for pure refinancing.

However, this growth is tempered by rising land prices and execution risks, particularly in Spain, where developers face challenges such as labour shortages and the inability of construction companies to provide fixed budgets.

Structural Challenges and Enforcement Risks

Legal jurisdictions in Southern Europe, specifically regarding the enforcement of security, are deeply complex. In Italy, for example, residential developments in Milan are currently difficult to finance due to judicial disputes over urban planning permits.

To mitigate these risks, lenders often employ Luxembourg structures or double-holding company pledges to ensure they can exercise control or enforce security more swiftly than local legal systems might otherwise allow.

Middle Market Dynamics

The middle market, typically involving tickets between EUR 10 million and EUR 70 million, remains a nuanced space where local knowledge is essential for pricing risk accurately.

There is a growing trend of large institutional lenders attempting to move down into the middle market to deploy capital, though some remain sceptical of their ability to handle smaller, more complex deals as efficiently as local specialists.

Despite this competition, the middle market continues to require bespoke deal structuring and a deep understanding of evolving local regulations.

Macroeconomic Concerns

Looking ahead, experts express concern regarding the disconnect between buoyant capital markets and the underlying real economy. Key risks include potential disruptions to capital markets that could stall equity transactions, as well as the long-term impact of wealth inequality and geopolitical shocks.

In specific hubs like Madrid, there is a fear that property prices may be reaching a ceiling, as local salaries struggle to keep pace with the rapid appreciation of residential real estate.

► Flexible Living Models

Where resilience meets scalable growth

Shift Towards Digitalised Operating Models

Traditional, staff-heavy hotel operations are losing space to highly digitalised and lean models.

By centralising administrative tasks and leveraging technology for guest interactions, these modern operators can achieve property margins and Gross Operating Profits (GOPs) that standard hotel brands struggle to match. This lean approach allows for the profitable operation of smaller properties, even with higher rents, giving them a competitive edge in the market.

AI is expected to be a massive catalyst for change over the next five years, particularly in automating guest-facing services and curating personalised stays.

Lease Model

Despite recent high-profile insolvencies among European white-label operators, the lease model remains viable if applied to the right assets. Failures often stem from unsustainable underwriting, poor locations, or excessive overheads rather than the lease structure itself.

However, there is a growing consensus that investors must look more closely at an operator’s fundamental business plan and rent coverage rather than relying on the perceived security of a lease.

Impact of Increasing Regulation

Europe is witnessing a tightening of regulations, particularly regarding the conversion of residential properties for short-term commercial use. Cities like Barcelona and Madrid are implementing stricter zoning laws and transparency requirements to protect housing stock.

Consequently, many operators are now focusing exclusively on commercially licensed plots and flex-living schemes to mitigate the risk of regulatory changes undermining their underwriting.

Major Brand Integration

Larger, traditional hotel chains have struggled to enter or acquire the niche living market effectively, largely due to the agility and bespoke technology stacks of smaller operators which are often difficult to integrate into the rigid ecosystems of global brands.

Past attempts at acquisition have often failed as the larger entities tried to force integration rather than allowing the acquired brands to operate independently.

► BTR and PBSA

Still compelling for capital?

Market Sentiment and Maturity

There is a clear divergence between the purpose-built student accommodation (PBSA) and BTR sectors, particularly in the UK. While PBSA remains a highly established and favoured asset class with a proven track record, BTR has recently faced significant headwinds.

This shift in sentiment is largely attributed to the maturity of the student housing market, which allows for more predictable underwriting compared to the relatively nascent and currently challenged BTR sector.

Although the fundamental demand for housing remains high across all categories, PBSA has outperformed recently while BTR has fallen out of favour due to shifting economic dynamics.

Development Viability

Financial viability of new development projects is increasingly elusive amid a perfect storm of rising construction costs, increased interest rates, and higher operational expenses that have made land values for BTR projects nearly negative in some instances.

In Spain, for example, construction costs have surged from EUR 900 to over EUR 1,500 per square metre in recent years, making value-add development platforms nearly impossible to build from scratch. This has led to a predicted "cliff" in the development pipeline by 2027, which is expected to further exacerbate the existing supply-demand imbalance.

Operational Efficiency

With the era of yield compression driven by low interest rates coming to an end, future returns must be driven by operational excellence and net operating income (NOI) growth.

Real estate is increasingly being viewed as an operational business rather than a passive asset class, requiring sophisticated management of technology stacks, staff, and revenue.

Achieving critical mass - estimated at roughly 7,000 to 10,000 beds across Europe - is essential to making an operating platform viable and justifying the heavy investment required for modern IT and service infrastructure.

Co-living and Flexible Housing

Co-living is emerging as a resilient sub-sector that often remains viable in markets where traditional BTR does not. Despite being a newer asset class with limited transaction evidence, co-living assets in the UK have shown high stabilised occupancy rates between 95% and 97% and surprisingly long average stays of 12 to 15 months.

There is also growing interest in flex-living models that bridge the gap between residential and hotel uses, particularly in Spain where new legislation allows for the repurposing of commercial land into residential use under specific rent-control conditions.

Regional Dynamics

While the UK is currently perceived by some international investors to be in extreme regulatory disarray, the fundamental lack of housing supply creates a long-term opportunity for recovery.

Conversely, European markets like Spain, Italy, and Germany are seeing strong tailwinds from international student demand and a lower penetration of professional PBSA products.

Across all regions, institutional capital is increasingly looking for established, high-quality platforms that can provide consistent reporting and operational data across multiple jurisdictions.

► Europe’s Light Industrial & Logistics

Overcrowded, saturated, or the next strategic pivot?

Market Performance

Despite a sluggish macroeconomic environment characterised by 1% GDP growth in the eurozone, the industrial and logistics sector remains a preferred asset class across Europe - jumping from fifth to third place in investor preferences in the latest GRI Barometer.

There is a distinct geographical divergence in performance, with Southern European markets like Spain, Italy, and Portugal outperforming traditional hubs such as Germany and France. 

While investment volumes remain below historical peaks, the market has stabilised with yields reaching a plateau, though the UK and the Netherlands continue to show resilience in transaction growth.

Occupier Demand

Occupier demand is increasingly defined by a flight to quality, as tenants migrate from older stock to modern, efficient, and operationally functional facilities.

Although overall take-up figures appear subdued, this is largely attributed to delayed decision-making and the consolidation of multiple locations into single, larger units rather than a withdrawal of requirements.

Occupiers are also reconfiguring supply chains through near-shoring to address vulnerabilities exposed by global disruptions and shifting trade tariffs.

Development Constraints

New supply is currently below the five-year average due to high construction costs, scarce land availability, and stringent regulatory environments. Developers are maintaining a cautious approach, often requiring a 200-basis-point spread between development yields and exit cap rates to account for permitting risks.

To mitigate these risks, many firms are focusing on pre-let or build-to-suit (BTS) projects rather than speculative developments, particularly in markets where planning permissions can take upwards of 12 months.

Energy and Artificial Intelligence

Power availability has emerged as a critical barrier to development, particularly for technologically advanced warehouses requiring high levels of automation.

Beyond infrastructure, there is growing concern regarding the disruptive potential of AI on the existing tenant base, specifically third-party logistics (3PL) providers. Some logistics companies have already seen stock price volatility attributed to AI-related uncertainty, making future power and technological requirements difficult to predict.

Fundraising and Capital Rotation

The fundraising environment is showing signs of incremental improvement as investors begin to accept current market conditions as the new normal. While capital is becoming more selective, it is rotating rather than retreating, with significant interest still stemming from core-plus funds and Middle Eastern family offices.

Logistics continues to benefit from a default preference among lenders and investors, as other sectors like offices and residential face more acute challenges related to depreciation and tight regulation.

► Data Centres

Powering Europe’s digital backbone or stalled by power and land constraints?

AI Infrastructure Gap

There is a significant geographical imbalance in AI computing power, with Europe currently holding only 5% of global capacity, compared to 75% in the United States and 15% in China.

This disparity is driven by more relaxed planning regulations and greater power availability in the US, alongside a massive influx of capital for training facilities that Europe has yet to match.

While the European Union’s Invest AI initiative aims to deploy EUR 200 billion to bridge this gap, the continent remains hampered by fragmented regulatory frameworks and a slower pace of development.

Transition to Liquid Cooling

A fundamental shift in data centre design is occurring as AI workloads demand significantly higher power densities, rising from historical norms of 5-10 kilowatts per rack to upwards of 100 kilowatts.

Traditional air-cooling methods are being replaced by direct liquid cooling (DLC) systems that bring water directly to the chip. This transition necessitates entirely different building specifications, including reinforced floor loading to support heavier equipment and complex internal piping networks that were previously forbidden in IT environments.

Development and Risk Management

Modern data centres are increasingly viewed as complex infrastructure mega-projects rather than standard real estate developments. Developers face severe challenges including permitting delays, grid connection queues, and long lead times for critical components like generators, which can exceed 80 weeks.

To mitigate these risks, experts advised engaging Tier 1 contractors early in the design phase and being cautious of "PowerPoint data centres" - speculative projects that may never be built due to unrealistic cost estimates or the looming loss of electrical rights.

Tier 2 Markets

While Tier 1 hubs remain dominant, Tier 2 markets such as Madrid, Milan, Warsaw, and the Nordics are seeing increased liquidity and interest due to better energy pricing and land availability. 

The cost of energy is the primary differentiator in these geographies, with southern European countries leveraging renewable surges and the Nordics benefiting from stable hydroelectric power.

Investors are beginning to consider smaller, 3-5 megawatt edge facilities targeted at small-to-medium enterprises or municipal sovereign data needs as a viable alternative to competing for massive hyperscale projects.

Retrofit vs. New Build

The feasibility of retrofitting older data centres for modern AI use is often regarded with scepticism by market players, under the understanding that existing facilities lack the structural integrity and power distribution architecture required for high-density racks.

While brownfield sites can be successfully optimised for traditional cloud demand by improving their Power Usage Effectiveness (PUE), AI requirements are often too specialised for simple upgrades.

Consequently, while cloud workloads can thrive in refurbished buildings, AI compute is better suited to purpose-built, modular facilities designed for future technological iterations.

► Hospitality Deals

How differentiated ops models preserve capital and where to place the best bets?

Luxury and Irreplaceable Assets

Investors are showing a strong strategic preference for luxury and upper-luxury hospitality assets, which are viewed as the most resilient investments in the current economic climate. 

This strategy particularly involves “irreplaceable" properties in both established and emerging travel destinations, such as Venice or Paris, where high barriers to entry like historical preservation and planning constraints create natural protection for owners.

This segment is driven by a structural shift in global wealth, with an increasing number of high-net-worth individuals (HNWIs) from regions such as Asia continuing to travel despite broader economic weakness.

The Role of Branding

There is an ongoing debate within the industry regarding whether the high cost of traditional hotel branding is truly justified by the value delivered. While brands provide essential distribution networks and connectivity, some investors believe that asset performance is often driven more by location and service quality than the flag outside.

Consequently, many firms are increasingly comfortable with independent or soft branding, focusing instead on the track record of the operating company and the ability to meet specific customer expectations through well-trained staff and unique arrival experiences.

Operational Excellence vs. Market Timing

Operational excellence has become more critical than perfect market timing, as real estate transactions take too long to facilitate a pure trading strategy. The historical correlation between hotel performance and the general GDP cycle has weakened, with the sector currently thriving despite a low-growth environment.

Success is now defined by the success formula of attracting high-spending clientele while maintaining cost-efficient operating environments and leveraging technology to enhance human connection.

Strategic Cost Optimisation

Investors are seeking pockets of value in markets that are not yet fully institutionalised, such as mountain resorts in Italy where yields can be significantly higher than in neighbouring Austria or Switzerland.

A key strategy involves identifying disruptor business models in city centres that utilise real estate intensively through high density and low staffing ratios. However, owners must maintain a delicate balance between cost-cutting and brand integrity, as over-optimisation can eventually sacrifice the guest experience and long-term reputation.

Financing and Geopolitical Resilience

Despite broader economic concerns, debt remains available for those with a strong track record, with some firms securing favourable rates and focusing on optimising leverage across their portfolios.

While investors remain vigilant regarding geopolitical risks and potential de-globalisation trends, they generally believe that such events have a limited impact on the long-term growth of hospitality demand.

Additionally, sophisticated LPs are increasingly moving away from simple lease products in favour of direct operational exposure, recognising the inherent complexity of the hospitality asset class.

► Offices Resetting Expectations

Vote of confidence or not for me?

Market Divergence

The office sector is experiencing substantial divergence, where performance is increasingly dictated by specific location and quality. While regional or secondary offices face immense challenges, prime assets in central business districts (CBDs) remain highly resilient with very low vacancy rates, such as the 1.2% seen in certain London sub-markets.

This laser focus on core locations is driven by top-tier buildings in transport-rich, mixed-use urban areas continuing to attract robust tenant demand, whereas buildings in peripheral locations may never return to office use.

Refurbishment and ESG

There is a growing consensus in the industry that office refurbishment and brownfield redevelopment are currently more viable than greenfield projects, primarily due to the shorter business plans required to navigate volatile cycles.

Beyond speed to market, refurbishment is essential for meeting modern ESG standards and addressing sustainability demands - a key priority for attracting high-quality occupiers, as best-in-class amenities and sustainable credentials are no longer optional but are primary drivers of occupancy and rental growth.

AI and Technology

Contrary to fears that AI may reduce the need for physical space, major AI and technology firms are currently among the most active occupiers. Large-scale pre-lets by companies like Databricks and OpenAI in London, as well as growing demand in Dublin and Lisbon, suggest that these sectors still require physical hubs for collaboration and training.

Furthermore, AI is being integrated into the operations of traditional tenants, such as Visa, who are consolidating into larger, tech-enabled headquarters to support their evolving business models.

Regional Market Dynamics

Market dynamics vary across European markets; London has shown proven rental growth and high liquidity, while other markets like Dublin and Lisbon have historically struggled to break through specific rental ceilings.

The CEE region is experiencing a period of renewed growth characterised by strong tenant demand and the emergence of active local capital from the Czech Republic and Hungary, filling the void left by retreating German open-ended funds.

This shift suggests that boots on the ground and local knowledge are becoming more critical for successful investment than broad international structures.

Tenant Requirements

The flight to quality is being accompanied by a demand for greater flexibility in lease terms and physical building design. Occupiers are increasingly seeking "better” square metres rather than more square metres, prioritising spaces that offer social environments and services superior to the home-working experience to entice employees back to the office.

Developers are responding by incorporating "soft spots" - pre-engineered sections designed to be easily removed or adapted at a later date - for internal staircases and modular layouts, recognising that flexibility is now a fundamental component of a building’s long-term sustainability and value.

► Retail

What’s investable, what’s obsolete, and where is reactivation happening?

Bigger, Better, Fewer

The retail market is experiencing a significant split where the top tier of shopping centres and high-street locations are performing exceptionally well, while secondary assets struggle with increasing obsolescence.

Major retailers like Inditex, Nike, and Uniqlo are consolidating their physical presence into fewer, higher-quality super-prime stores that act as brand showrooms. This monopolistic trend means that assets failing to attract these anchor tenants face a lack of rental tension and a difficult path to viability.

Destination Retail

There is a fundamental shift away from the traditional 1990s model of retail as a simple commodity towards a destination approach that prioritises the "social glue" of an urban environment. 

Developers are increasingly focusing on mixed-use projects that combine residential, office, and hospitality elements to create a diverse income stream and a real downtown destination.

To compete with the convenience of e-commerce, physical retail must now focus on dwell time by incorporating significant food, beverage, and cultural experiences.

Resilience Against E-commerce

While e-commerce penetration continues to rise, the physical retail market is right-sizing rather than collapsing. The marginal cost of selling goods online - including marketing, distribution, and the high rate of returns - is now often higher than selling through a physical store, leading brands such as Primark to remain successful without an online sales platform.

The industry is moving towards a model where the physical shop serves as a vital touchpoint for brand loyalty and in-person commerce, which cannot be replicated digitally.

Regional Opportunities

There is a clear divergence in retail health across different European geographies, with Iberia and CEE - particularly the Czech Republic and Poland - showing notable resilience.

Portugal has seen high sales growth driven by demographics and tourism, while the Czech market has benefited from strong GDP growth and a lack of alternative investment vehicles for local capital.

Conversely, the UK market is seen as highly dislocated, providing opportunities for opportunistic credit funds to acquire prime assets at a significant discount compared to previous cycles.

ESG as Investment Risk

Sustainability has transitioned from a certification check-box to a core component of long-term asset viability and risk assessment. Concerns remain among market players regarding obsolescence risk of out-of-town shopping centres, which are often difficult to heat and cool efficiently and remain heavily dependent on car traffic.

Furthermore, climate change is now a direct factor in acquisition strategies; investors are increasingly scrutinising assets for flood risks and long-term environmental implications, particularly in countries like Portugal that have recently suffered from extreme weather events.

► Asset Repositioning

What are the key strategies for future rewarding assets?

Office-to-Residential Conversion

The feasibility of converting obsolete office buildings into residential units is widely questioned in the real estate industry.

While there is a high demand for housing, the structural limitations of existing office assets - such as excessive floor-plate depth, inadequate natural light, and rigid column spacing - often make conversion costs prohibitively high. Furthermore, the technical requirements for modern residential living frequently lead to an inefficient use of space that diminishes potential profits.

Consequently, many developers believe that tearing down an obsolete structure and starting a ground-up development is often a more viable and cost-effective alternative than attempting a complex repurposing of the existing frame.

Regulatory Flexibility

Adaptive urban planning is essential in order to facilitate asset repositioning. In Madrid, new regional laws are being implemented to allow for the transformation of office space into affordable housing, even offering increased buildability as an incentive.

However, the transition from fixed, traditional urban planning to a more flexible, British-style model introduces new negotiation risks for developers. Successful repositioning requires a mindset shift within local administrations to view long-term socio-economic gains, such as talent attraction, as more valuable than short-term commercial tax revenue.

“Street to Seat" Repositioning

The "street to seat" philosophy ensures that every stage of an occupant's arrival - beginning at the building's street-level entrance and continuing through to their final destination at their desk - is enhanced by amenities, leisure facilities, and social hubs.

Repositioning is most successful when it focuses on creating vibrant, mixed-use environments rather than sticking to mediocre office designs. By activating the lower floors of buildings with leisure facilities, food and beverage outlets, and social amenities, developers can create an environment that attracts both talent and institutional interest.

This approach addresses the current development lag in new builds, allowing refurbished assets to reach the market more quickly and capture rental growth driven by a lack of high-quality supply.

ESG as a Financial Mandate

ESG considerations have evolved from simple badge hunting to a fundamental requirement for de-risking assets against future climate scenarios. Investors are increasingly scrutinising the long-term resilience of building systems, such as HVAC and flood protection, with some local authorities already mandating larger storm deposits to account for extreme weather patterns.

Failing to account for these climate-related CapEx requirements leads to the rapid depreciation of property values, as banks and insurance companies begin to price these environmental risks into their financing models.

Shift in Capital Sources

There is a clear divide in the financing landscape, where traditional banks remain cautious about the uncertainty inherent in repositioning projects. This has created an opportunity for private equity and value-added funds to enter the market, targeting assets that are currently trading below replacement costs

While securing debt for the planning and negotiation phase remains difficult, once permits are secured, leverage of approximately 60% to 70% of building costs is achievable.

There is a growing trend of institutional investors exiting these risky assets, only to likely return once the repositioning has been de-risked and stabilised by more entrepreneurial capital.

► Europe’s Net-Zero Real Estate

Stranded assets or sustainable success?

Quantification of Transition Risk

The potential financial impact of the green transition on real estate portfolios is increasing. Using a five-step assessment process, researchers compared retrofit costs across various property types and found significant disparities in estimates from different vendors.

The data indicates that current CO2 emissions and energy consumption often exceed established benchmarks, such as the Carbon Risk Real Estate Monitor (CREM) pathways. Consequently, investors must now account for a transition risk premium that includes both physical retrofit costs and potential penalties for failing to meet carbon reduction targets.

From Strategy to Implementation

There has been a definitive shift in the industry from high-level sustainability strategy to the practical implementation of decarbonisation projects. While many organisations have transition plans in place, the current focus is on overcoming the inertia of a fragmented industry and technical hurdles.

The transition involves moving from theoretical audits to specific engineering solutions, such as installing air-source heat pumps, improving insulation, and managing the performance gap through post-occupancy monitoring.

There is a growing emphasis on value preservation, where sustainability initiatives are increasingly viewed as a means to protect and enhance NOI.

Green Lending

The financial sector is becoming a primary accelerator for the energy transition through the proliferation of green bonds and sustainability-linked loans. Lenders are increasingly offering interest rate discounts - or imposing penalties - based on an asset's alignment with decarbonisation pathways.

In Europe, approximately 21% of syndicated originated loans are now sustainability-linked, with many banks requiring rigorous third-party verification of carbon reductions. Furthermore, the introduction of Basel IV regulations is expected to make the cost of capital higher for non-green assets, providing a strong monetary incentive for asset managers to prioritise environmental compliance.

Standardisation and Data Accuracy

There is an urgent need for harmonised standards across the European real estate market amid historical confusion caused by differing Energy Performance Certificate (EPC) methodologies and building standards across various countries.

Efforts like the Energy Performance of Buildings Directive (EPBD) and the CREM pathways are working to provide a consistent global standard for benchmarking asset performance. The industry is moving towards relying on actual, real-time energy consumption data rather than theoretical estimates, which allows for more accurate risk analysis and more effective collaboration between owners and tenants.

Operational Efficiency and Resource Optimisation

Beyond physical retrofits, improving building operations and space utilisation is often a more accessible way of meeting decarbonisation pathways.

Data suggests that many existing buildings suffer from low occupancy rates, with some measuring as low as 33% to 36% on certain days. Rationalising and densifying the use of existing space is a critical, yet often overlooked, component of the net-zero transition.

By using sensors and artificial intelligence to monitor occupancy and air quality in real-time, asset managers can significantly reduce unnecessary energy consumption and avoid the carbon footprint associated with new construction.


 

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Thank you to our speakers, moderators, co-chairs, and all participants for their contributions to the valuable discussions that unfolded at the Europe GRI 2026 - Winter Edition.