Europe’s commercial real estate sector remains stuck in what some investors are calling “zombieland,” with hopes of a post-pandemic recovery fading amid falling sentiment, stubborn pricing, and increasing competition from other private markets.
According to updated MSCI data, Reuters reported commercial property sales in Europe were flat year-on-year in Q1 2025 at €47.8 billion (A$81.7 billion), still less than half the volume recorded three years ago.
Preliminary Q2 figures from Knight Frank indicate cross-border investment into property across Europe, the Middle East and Africa dropped nearly 20% from a year earlier to €17.2 billion — the weakest April–June result in a decade.
Despite early optimism in 2025, the sector has struggled under pressure from unpredictable U.S. trade policy, more attractive yields in private credit markets, and sellers unwilling to adjust valuations to reflect current conditions.
Even previously resilient sectors like data centres are seeing reduced activity, although under-supplied rental housing remains a drawcard for investors.
PGIM’s head of European real estate, Sebastiano Ferrante, described the current market as lacking recovery momentum, with stranded assets and minimal liquidity.
Out-of-town office parks and ageing shopping malls are among the most illiquid assets, while logistics, hotels, and rental housing continue to present selective opportunities.
In a sign of the ongoing distress, Canada’s Brookfield asked bondholders to restructure a loan against its London CityPoint office tower after halting its sale due to underwhelming bids.
Meanwhile, Frankfurt’s landmark Trianon skyscraper has been placed on the market following its owner’s insolvency — a rare move in Germany’s otherwise frozen high-end commercial sector.
Germany, Europe’s largest economy, continues to lead the downturn, with commercial property sales falling an additional 2% in H1 2025, according to CBRE.
Private credit is proving more attractive to investors, with European credit funds raising US$39.9 billion in the first half of 2025 — nearly double the inflows to real estate funds.
Data from INREV shows investor sentiment toward European property hit a 12-month low in June, mirroring trends in the U.S.
According to Cecile Retaureau of Phoenix Group, recovery is happening in some niches, but for less desirable assets, “there is almost no liquidity and more pain to come.”
