According to Knight Frank’s European Outlook, the European real estate market enters 2026 against the backdrop of structural shifts that took shape throughout 2025. The past year marked a period of adjustment to a new cost of capital, changes in investment strategies, and a reassessment of priorities in development and asset management.

One of the central themes of 2025 was the stabilisation of market expectations. After a prolonged period of price correction, investors and sellers across most segments converged toward more closely aligned value benchmarks. This convergence created a foundation for increased transaction activity and allowed the market to move from a waiting phase to a phase of selective engagement.

The investment landscape continued to favour assets with predictable cash flows. Residential real estate, logistics, and selected retail formats attracted a significant share of capital, reflecting their relative resilience to demand volatility and ability to deliver stable operating performance. By contrast, office real estate remained subject to a more selective approach, with emphasis placed on asset quality, energy efficiency, and location.

Financing costs throughout 2025 continued to influence both investment and development decisions. Capital-raising conditions remained tighter than in the pre-crisis period, affecting deal structures, leverage levels, and project timelines. As a result, many market participants favoured transactions with lower risk profiles and more conservative capital structures.

Development activity shifted toward projects offering a high degree of predictability. New speculative launches were limited, while priority was given to residential developments, logistics schemes, and the redevelopment of existing assets. This approach lays the groundwork for a more controlled supply environment entering 2026.

Geographically, investment activity remained concentrated in Europe’s core economies and major urban agglomerations. Cross-border capital continued to play a role, albeit in a more selective form, with a focus on markets offering sufficient liquidity depth and transparent regulatory frameworks.

Operational efficiency of assets received increased attention during 2025. Energy performance, operating costs, and regulatory compliance were more frequently incorporated into investment decision-making. These considerations carry forward into 2026 as integral components of risk and return assessment.

Overall, the European real estate market enters 2026 with a set of stable parameters shaped during 2025: adjusted pricing expectations, a more cautious approach to risk, and a pronounced shift toward asset quality and predictable cash flows. These conditions form a transitional bridge between the two years and define the framework for future investment and development activity.

Commentary from M24 Investment Division:

The year 2025 marked the transition to a new operational norm. The market showed clear signs of stabilisation, including the alignment of pricing expectations, a focus on highly predictable assets, and a restrained approach to new development initiatives. These parameters provide a foundation for managed activity in 2026, with priority placed on quality, energy efficiency, and liquidity.