As we entered the final quarter of 2025, there was a sentiment shift within the European real estate investment landscape as industry leaders began to act despite ongoing geopolitical uncertainty.

There continues to be discussions around the evolution of risk assessment, shifts in capital flows toward European markets, and the enduring appeal of the logistics and living sectors. Further, as the market continues to regain confidence, we are noticing personal connection and trust being deemed essential for effective risk allocation and investment decisions.

Shifting sentiment: From caution to action

Sentiments over the past few years have been defined by a restraint on investor confidence due to geopolitical and wider macro uncertainty. The outlook was defined by caution and survival until such headwinds eased.

While those themes of caution and survival have not been confined to the past, we now see the return of optimism as we move toward 2026 and some mobilization toward action in the real estate investment and debt markets.

Despite certain markets and geographies remaining dislocated, there is an increasing acknowledgement that within a new world of greater pragmatism and the acceptance of geopolitical uncertainty, macro headwinds can now be risk-allocated, priced in, and inform rather than deter transactional activity.

Mobilization resulting from this mindset shift may take time to translate into pre-COVID-19 transaction volumes as the management of, and appetite for, risk is likely to influence the speed of and approach to transactions. Nevertheless, what we are hearing heralds an important vote of confidence in the fundamentals of the European market.

The debt landscape

While underlying transaction volumes are increasing, the small number of high-quality new money deals that come to market are aggressively brokered.

In this competitive landscape – and in the context of non-core deals – lenders who can blend different sources of capital, including cheaper insurance money, are well placed to secure mandates.

The comparative scarcity and pricing pressures of deals are increasingly forcing lenders to deploy tickets in the lower mid-market (€30 million – €50 million), where execution speed and the ability to underwrite more transitional business plans are highly prized.

As capital raising pressures slowly ease on managers with an allocation to credit, lenders continue to favor asset classes that benefit from structural undersupply combined with compelling debt-entry points.

The evolution of risk assessment

In a market regaining its confidence, it is clear that (more than ever) careful and considerate risk management will be a major influence on transaction activity.

Institutional capital remains attracted to asset classes where operational excellence and expertise drive value and returns. Meanwhile, the need for such capital to partner with sector-specific operators is fueling a rise in risk-sharing transaction models, joint ventures, co-investments, and secondaries.

The usual fundamentals of site selection, due diligence, and realistic transaction timetables remain important, but we are seeing the market focus much more heavily on personal relationships as the key to risk management.

While artificial intelligence (AI) may allow elements of investment due diligence to be accelerated, it cannot replace personal connection and accumulated trust. Confidence in investing via long-term partnerships requires cultural and personal alignment, and there is a palpable sense that nothing replaces the need to build deep and informed connections between parties to inform risk decision-making.

A market redrawn to embrace the new normal

So, in a market ready to mobilize, how will a return to optimism translate into activity?

First, there’s been a growing allocation toward European markets from global sources of institutional and sovereign wealth capital that will make a meaningful difference.

Flexible, tech-enabled, sustainable buildings are likely to attract such capital, enabling deployment at scale in familiar and stable markets.

Sector-wise, there are signs of improvement in the office markets, but the logistics, living, and healthcare sectors continue to dominate opportunities.

From a logistics perspective, whether through a combination of supply chain changes driven by the impact of AI and automation, a continued evolution and sophistication of logistics to meet customer demand, or a need to prepare for the anticipated growth in data center capacity, logistics will be at the heart of investment activity going forward. Our recent work for a managed fund of Invesco Real Estate on the formation of a joint venture with Logistics Capital Partners to acquire and develop an 800,000 sq ft logistics park in Thamesmead, London, is a case in point.

In the living and healthcare sectors, demographics and societal changes will continue to drive investor appetite. As populations live longer and become accustomed to home ownership no longer being a barometer of personal prosperity and status, the need for the living sector to adapt is resulting in the advent of options beyond traditional build-to-rent.

Single-family rental and senior living are comparatively underdeveloped asset classes, and we expect to see increased allocations to these subsectors. Meanwhile, affordability issues in the purpose-built student accommodation sector may yet lead to more investments in portfolios of homes in multiple occupancy.

From a healthcare perspective, the fourth quarter of 2025 has seen major deployment of capital by US healthcare real estate investment trusts in the care home space, and we expect further consolidation and activity across the healthcare real estate sector, attracted by the impact on average life expectancy from medical advances and other supportive demographics.

Finally, while we have yet to see the implications of increased defense spending across Europe, it is a major focus. Outside of the need for more manufacturing capacity, existing and new supply chains must be developed and adapted to facilitate the political shift in priorities. As with other sectors, it will be critical that infrastructure spending from both public and private sources keeps pace and enables rather than frustrates development.

Conclusion

Although encouragement can be taken from the gradual increase in market confidence and pragmatism, the most important theme among European real estate investors is the enduring power of personal connection and trust as the bedrock of investment.

The most important theme among European real estate investors is the enduring power of personal connection and trust.

We see a market ready to do business, but effective risk allocation is more critical than ever. In a world where the operationalization of real estate continues at pace, getting closer to, understanding, and leveraging the expertise of investment partners cannot be outsourced or automated – and that is something the sector is doubling down on going into the next wave of activity.