PGIM: Europese vastgoedmarkt heeft meer tijd nodig om te herstellen
By Sebastiano Ferrante, Head of Europe, Real Estate at PGIM
Hopes of a stronger recovery in the European real estate transaction market have so far not materialised in 2026. Allocations to real estate have declined, and liquidity is lacking, particularly on the equity side.
At the same time, higher swap rates are leading to differing price expectations between buyers and sellers. We therefore expect the market will need more time to adjust to the higher interest rate environment.
This is not just a normal property cycle. The adjustment process is also structural in nature. Many European pension funds and professional pension schemes now have outflows rather than inflows and require distributions.
At the same time, new asset classes have emerged that are also competing for capital. Real estate therefore needs to generate attractive returns again and re-earn its place in capital allocation.
The focus must be on the exit
This requires, in particular, looking at a property along the entire investment chain. Alongside a favourable entry price and good prospects for rental growth, the focus must be on a clear exit market.
When acquiring an asset, an investor must already know who the potential buyers will be later on and how liquid the product will remain. This is the only way for real estate to deliver sustainably competitive returns.
In other words, those who jump on short-term trends may be taking on high risks. A central anchor for investment can be “daily living”, meaning everything connected to everyday life. Its main strengths are consistent demand and high resilience, while partly constrained supply also brings potential for rental growth.
Residential: High demand in a heavily regulated segment
The residential market is and remains a core market within the real estate asset class. However, investing has become more difficult because the segment is more heavily regulated and creating new supply remains complicated.
As a result, investment opportunities are increasingly concentrated in specific concepts, such as student housing or senior living. We see promising approaches in converting obsolete, centrally located office buildings into micro-living properties. Terraced rental homes for families on the outskirts of large German cities can also be an interesting approach, combining affordable housing with an attractive return.
Data centres: Power alone does not make a location
As digitalisation advances, data centres are increasingly becoming a bottleneck. Europe clearly has some catching up to do here, while the question of data sovereignty is becoming more important.
Different requirements are leading to two clearly distinct developments. For large-scale AI training centres, the availability of power is often the most important location factor, as computing loads can be shifted relatively flexibly to wherever sufficient energy is available.
By contrast, low-latency, cloud-ready and end-user-oriented data centres need to remain located close to major population and economic centres. Alongside the availability of suitable land, access to power, a connection to the grid, the granting of the necessary permits and acceptance by the local population are therefore key prerequisites.
Office remains a challenging investment segment
The situation in the office market is different. Institutional investors have built up large office allocations over decades. In the long term, these allocations will shrink and become increasingly concentrated on the best properties in central locations.
The challenge, however, is the size of many office investments. Single assets with a volume of more than EUR 150 to 200 million are currently difficult to place. Large office towers can be very attractive to tenants, but at the same time represent a significant single-asset risk for an investor.
The currently high demand for space from individual AI companies does not change our fundamental assessment either. This demand is, for now, an expression of a strong expansion phase. In the long term, the question is rather how the productivity gains expected from artificial intelligence will affect demand for office space.
Tourism rather than business hotels
Beyond everyday needs, we also see momentum in the hotel sector. Here too, however, differentiation is needed. Tourist destinations, for example in Southern Europe, have particularly good prospects.
There, strong international demand, good rates and comparatively lower costs come together. We are more cautious about hotels that depend more heavily on business travel in Germany and parts of other European markets.
In retail, too, we do not see a broad return of the traditional segments. Shopping centres remain difficult, as do parts of inner-city retail. In our view, however, opportunities continue to exist in food-anchored retail.
The real estate market is therefore becoming more specific. For investors, it is no longer enough to opt for a broad asset class. Rather, it is essential to find strategies within these markets where entry price, demand, rental growth and a later exit fit together. Despite the difficult market environment, this is precisely where exciting investment opportunities continue to lie.
