European real estate market outlook Q4 2025 | Aberdeen Investments

Aberdeen Investments, a respected publisher in the financial and investment sector, presents an outlook on the European real estate market for Q4 2025, authored by Craig Wright and Stephan Schanz. This document provides insights into the economic context, market trends, and potential investor opportunities within the housing sector.

The European economic landscape shows signs of resilience, despite facing persistent risks and challenges. The Eurozone's Purchasing Managers’ Indices (PMIs) indicate a steady economy, although variances exist across countries. France's political climate raises concerns, affecting market sentiment, while ongoing geopolitical tensions in Eastern Europe remain subdued. Fiscal stimulus from defense and infrastructure spending is expected to boost economic activity from 2026 onward.

Inflation rates hover just above the European Central Bank’s target at 2.2%. While consumer expectations predict a rise to 2.8%, the probability of significant price increases in 2026 seems low, suggesting a potential undershoot of inflation targets. The ECB has concluded its easing cycle, signaling a neutral policy rate, with future adjustments dependent on demand-side risks and political uncertainties, particularly in France.

The European real estate market is gradually recovering, reflected in Aberdeen’s “+1 overweight” recommendation for real estate investments. Total returns have improved, especially in the UK and across Europe, with Continental European real estate achieving a property-level return of 6.2% over the year leading to June 2025, slightly trailing the UK’s 6.6%. However, Real Estate Investment Trusts (REITs have underperformed compared to broader equities, indicating a sensitivity to inflation and interest rates.

The real estate market indicates a gradual recovery with signs of renewed investor optimism. The INREV Confidence Indicator has rebounded, suggesting improved financing conditions and investment liquidity. Meanwhile, European offices are experiencing a transition, with vacancy rates declining. However, demand has softened, particularly in key urban areas like Paris, which faces significant political and economic challenges.

The logistics sector is currently navigating a soft patch, with vacancy rates rising yet remaining below long-term averages. Conversely, the retail sector has shown strong performance, with significant investment volumes and declining vacancy rates. The residential market remains robust, driven by structural demand, with vacancy rates expected to decrease in major European cities over the next four years.

As the market enters Q4, there is cautious optimism about a potential uptick in activity. Investors are increasingly interested in sustainable housing, particularly in light of the ongoing low supply and evolving market dynamics. Total returns are expected to rise to 7.1% over the next year, with core sectors like industrial, residential, and retail warehousing favored for investment.

In summary, the European real estate market is at a pivotal moment, with diverse opportunities emerging against a backdrop of economic resilience and sector-specific challenges. The insights provided by Aberdeen Investments will guide investors looking to navigate this complex landscape.