The European commercial real estate market is experiencing a downturn: sales are at historic lows, investments are declining, and offices are sitting idle, while residential remains the only growing sector. Here’s what you need to know.
The European commercial real estate market is stalled. Sales are near their lowest in a decade, despite many analysts predicting a recovery at the beginning of 2025. It’s not surprising, given that investor sentiment toward European real estate is at its lowest levels in over a year, according to INREV data.
Offices, shopping centers, out-of-town retail centers...no one can sell them. And this isn’t just a specialist market indicator: in the past, similar conditions have often preceded economic slowdowns that shouldn’t be underestimated. We’re talking about structural imbalances that everyone, even those who aren’t real estate professionals, should be aware of.
Yet, while the commercial market slows, the residential market is showing resilient growth. Why? There’s a specific reason. And if you’re thinking of investing in real estate, or have recently done so, remember: what you’re about to read could make the difference between a conscious decision and an investment destined to destroy value.
A look at the numbers
In Q1 2025, European real estate transactions totaled €47.8 billion (MSCI data). This is flat compared to last year, but less than half compared to three years ago. This underscores the magnitude of the decline: less than half.
And yet, in the common narrative, real estate remains a "safe haven," an asset to keep in your portfolio at all times. But the data tells a different story.
Let’s get into the technical details: in Q2 2025, cross-border investments fell by 20% YoY, reaching 17.2 billion euros. This was the worst April-June in the last ten years, according to Knight Frank. This decline represents more than just a negative performance; it’s a market signal. It means there’s no demand even among the institutional investors who had historically driven the growth of these assets.
And here’s the crucial question: why can’t offices and shopping centers be sold?
And be careful: we’re not just talking about the old "brick and mortar". Innovative asset classes, such as data centers, are also slowing.
The problem is twofold: on the one hand, post-pandemic demand has changed radically, on the other, the cost of capital (with higher, albeit declining, rates and more difficult financing) is tightening capital availability. Institutional investors have reduced exposure, real estate funds are facing difficulties in completing asset disposals, and portfolios are filling up with illiquid holdings, while the expected return erodes quarter after quarter.
The exception that stands out
However, there is one sector that stands out: the residential rental market. Undersupplied, with sustained demand and capital continuing to flow into this segment.
Today’s investors are seeking exposure to residential in high-density urban areas, especially where regulatory constraints limit supply and guarantee bargaining power over rents. The rest of the real estate market, however, continues to lag behind.
And now?
For those thinking of entering the real estate because "real estate never disappoints," it’s time to reconsider. Today, it’s no longer one of those sectors in which to make uninformed investment decisions. There are issues related to asset liquidity and the macroeconomic context.
The real estate market is no longer what it was ten years ago, and the data proves it. Original article published on Money.it Italy 2025-07-22 18:24:00. Original title: Quale futuro per gli investimenti nel mercato immobiliare?
