Five themes shaping global real estate in 2026: European investors' perspectives

Broadly, a consensus has emerged that the real estate cycle has entered a recovery phase. What differs is the shape of that recovery. Rather than a traditional U- or V-shaped rebound, a more accurate characterization is one of a K-shaped recovery, marked by widening return dispersion across sectors, geographies, and strategies. This somewhat differentiated perspective, coupled with renewed attention on public REIT market signals, ongoing resilience in lease driven cash flows, and growing conviction in sectors including data centers, multifamily, and logistics, formed the foundation of many investor discussions.

The perspectives below outline the top five themes for European investors today, and highlight the factors that may prove most consequential in navigating the next stage of the cycle.

Tensions in the Middle East remain top of mind for European investors. Despite these risks, the overall assessment is that commercial real estate remains on a stable footing, and notably, our 2026 outlook has not materially changed. Long term lease structures continue to support income stability, and fundamentals—outside of office and select life sciences segments—are proving resilient.

Investor sentiment has gradually improved, supported by early signs of recovery in capital markets activity. The ultimate economic impact will depend on the duration and intensity of geopolitical disruptions, particularly as they relate to energy markets and global trade. In this environment, investors are best served by focusing on what they can control: driving net operating income growth.

A key theme across recent conversations was the movement in the 10-year U.S. Treasury yield, which has risen from 3.94% to 4.17% as of March 9. While geopolitical tensions can lift long-term yields, the term premium has been relatively stable, suggesting the recent increase may reflect rising inflation expectations, including the impact of oil surpassing $100 per barrel. (As measured by the Adrian, Crump & Moench 10 Year Treasury Term Premium Model, it has remained relatively stable at around +64 bps.)

Commercial real estate generally provides a hedge against most inflationary environments, with the notable exception of stagflation, when interest rates rise due to higher inflation while economic growth stagnates. That scenario represents the clearest downside risk. At the same time, a sharp decline in 10-year Treasury yields may not deliver the relief rally some expect, as it could signal a weaker macro backdrop characterized by slower growth and widening credit spreads.

The most favorable environment for real estate would be rate stability rather than dramatic moves in either direction. Since real rates matter more than nominal rates, given the strong historical relationship between inflation and NOI growth, a 10-year Treasury anchored around 4.0%–4.25%, paired with inflation near 3%, represents a historically constructive backdrop for CRE. Under this scenario, real rates would be roughly 1% (4% nominal minus 3% inflation). For context, real rates have averaged about 1.49% since 1997, 1.7% from 1997 to 2019, and 2.9% from 1997 to 2007 - periods during which CRE delivered attractive returns.

Tariff concerns have been noticeably less prominent this year. Instead, investors focused on the underlying health of the U.S. consumer and the widening bifurcation within the economy. Importantly, while U.S. GDP growth finished 2025 at 2.2% and consensus expects +2.5% in 2026, headline resilience conceals a K-shaped economy. Consider:

• Higher income households continue to drive consumption.
• Lower income cohorts face deteriorating wage growth and rising delinquencies on student loans, credit cards, and other borrowing.
• As such, expect that affordability (or lack thereof) will likely be a significant focus of U.S.mid-term elections in November.

In Europe, 2025 GDP growth exceeded expectations and was upgraded to 1.4% by year-end, supported by fiscal stimulus, delayed tariff impacts, and broadly prudent policy decisions. While the Eurozone was not the world's top-performing region, its resilience highlighted meaningful improvements in competitiveness, productivity, and overall economic discipline. Despite lingering skepticism following years of underperformance, global investors are increasingly recognizing that the region's structural fundamentals have strengthened. As a result, cautious optimism is building that the Eurozone may be moving toward a more equal footing with the United States, helped in part by ongoing stimulus measures. Interestingly, U.S. investors appear somewhat more optimistic on Eurozone growth prospects than European investors themselves, who remain wary after several years of modest outcomes.

It's a consensus view that the global real estate cycle has moved into recovery: U.S. ODCE indices have risen for 6 consecutive quarters, and Europe for 7 quarters. Europe's trailing four-quarter unlevered returns (~6.8%) currently outpace the U.S. (~5%), consistent with our view that Europe would likely outperform the U.S. despite lower cap rates, given improving economic conditions and lower sovereign debt yields, which make leverage more accretive. However, headline returns mask meaningful dispersion:

• In Europe, the spread between top quartile and bottom quartile ODCE funds is more than 300 bps.
• In the U.S., the gap is even wider, with bottom quartile funds reporting slightly negative returns.
• In other words, the top U.S. funds are outperforming in line with Europe, but the bottom U.S. funds are underperforming their European peers.

Furthermore, single-sector strategies in Europe have materially outperformed multi-sector portfolios, reinforcing the idea that selectivity, not broad-market beta, will drive returns in this phase of the cycle. This aligns with our view that the recovery is K-shaped, and with limited expectations for cap-rate compression, NOI growth becomes the primary driver of both income and capital appreciation.

Public markets have historically been an accurate leading indicator of private real estate in both downturns and recoveries, but they can also serve as an important barometer of secular shifts. With that in mind, investors were interested in digging into the meaningful absolute and relative outperformance of U.S.-listed REITs in the first two months of the year (+10.5%) and in February (+7.5%) when AI concerns intensified. Data centers, logistics, and housing continue to resonate with investors across both the U.S. and Europe. To keep the discussion focused and concise, conversations on opportunities in Europe centered on the following:

Data centers: Structural tailwinds and demand outpacing supply

Data centers remain Europe's strongest property type, with demand expected to outpace supply for the fourth consecutive year. Revenue per available facility (RevPAF) is projected to grow at a 6.5% CAGR from 2025 to 2029, underscoring the depth and durability of tenant requirements. The five largest European markets (Frankfurt, London, Paris, Amsterdam, and Dublin) are set to capture roughly 48% of 2025 take up, and vacancy in these core hubs continues to tighten, now at 6.9% overall (with Dublin at 4.4% and Frankfurt at 4.6%).

At the same time, differentiation within the sector is increasing. The most compelling opportunities lie in cloud-oriented data centers (both hyperscale and colocation) located in Availability Zone (AZ) clusters across FLAPD markets, as well as select emerging locations such as Madrid and Milan. These assets benefit from entrenched tenant demand, established fiber connectivity, and strong utilization, resulting in more predictable cash flows and lower operational, security, and AI related risk exposure.

Demand is being shaped not only by AI adoption, but also by regulatory preferences. Many European corporates and governments prefer data to reside within European jurisdictions. A recent BARC study found that 84% of surveyed companies view data sovereignty as central to their strategy, with 70% reporting a sharply higher level of relevance over the past one to two years. This push further strengthens demand for cloud infrastructure within Europe rather than diverting workloads to larger scale U.S. markets.

Availability Zones themselves provide a strategic advantage: as clusters of interconnected facilities with high-speed, low-latency fiber, they enable communication in milliseconds and offer tenants resilience, redundancy, and performance reliability. High barriers to entry, including power constraints, land scarcity, and long permitting timelines, help maintain the current favorable supply demand imbalance.

Logistics: Normalization is concealing widening performance divergence

Europe's industrial and logistics market has largely normalized. Vacancy, take-up, and rental growth have softened, and performance has converged with that of traditional sectors. Rents rose 3.3% in Q3 2025 versus 11.7% in Q3 2022.

Beneath this surface normalization, the sector's outlook is becoming more selective. Occupiers are increasingly prioritizing modern, efficient, future-proof assets. A widening quality premium is emerging, driven by three forces:

1. Rapid technological advancement in AI enabled warehousing, robotics, and fulfillment.
2. Tightening environmental and sustainability standards.
3. A limited new supply is expected to enter the market in 2026.

These dynamics are most apparent in the Netherlands, where fundamentals remain tight, and demand is reinforced by the country's role as Europe's primary gateway through Rotterdam. By contrast, the UK has softened, with rising vacancy and moderating rental growth after several strong years. That shift is creating opportunities to develop or redevelop modern logistics properties where existing stock falls short of occupier requirements.

European residential: Deep structural support, strong returns, and local nuance

European residential remains resilient, anchored by longstanding structural undersupply. Single sector European residential funds delivered +7.3% net returns in 2025, the strongest across major property types. Demand should hold through 2026 and beyond, supported by migration, shifting household formation, urbanization, and longer rental tenures as affordability delays homeownership in major cities. Institutional investment is set to deepen, with Europe still roughly 15 years behind the U.S. in market penetration.

Performance will vary by market. The UK benefits from favorable demographics, no rent caps, and a gradual move toward institutional ownership. Spain continues to see strong price growth fueled by demand, migration, and constrained supply. The Netherlands remains highly constrained, but continues to attract institutional capital due to its stable fundamentals.

Despite these favorable tailwinds, there is growing recognition that the challenge is not simply undersupply but a mismatch between the types and locations of housing and where demand exists. This misalignment will increasingly shape strategy and outcomes across the sector.

Despite a noisy macro backdrop, conversations across Europe pointed in the same direction: the real estate recovery is underway, but uneven. Investor attention is squarely on controllable drivers, like growing NOI through selective assets, markets, and managers, while rate stability, rather than large moves, is viewed as the most supportive backdrop. Client interest broadly aligns with our 2026 Outlook : data centers, residential, and modern logistics—where demand is durable, and supply remains tight—stand out as the most resilient opportunities.

Bottom line: allocate to sectors with structural demand and constrained supply, focus on NOI growth, and prioritize managers with a track record of disciplined execution. The recovery ahead will be driven by execution, not macro headlines.