Economic Outlook
The global economy remains resilient, albeit with uneven growth, supported by strong investment in the technology sector. In Europe, this is complemented by increased defence and consumer spending.
On the inflation front, signals have been mixed. Overall, underlying inflationary pressures have remained limited despite energy price volatility.
The outlook for interest rates, particularly at the long end of the yield curve, has deteriorated significantly, with many countries testing historical highs in 10-year government bond yields. We expect one 25 bps policy rate hike by the end of 2026.
Capital Market remained on a resilient trajectory
So far, the cautious stance by central banks provides limited support to real estate though it does not remove policy uncertainty entirely.
Slower activity in 2026 seems likely rather than derailing of recovery as investors respond with equal caution. For now, market performance transitioned to a more moderate growth trajectory, maintaining a solid annual rate of 9%.
The market currently lacks significant systemic drivers; while there are few catalysts to trigger a sharp decline, there is similarly little to stimulate a meaningful expansion.
Office Letting Volumes Slowed in H1 2026
Office letting across the 18 main European markets totalled 3.64 million sqm in H1 2026, representing a 9% year-on-year decline and remaining below the five-year average, primarily due to a slowdown in large-scale transactions.
Prime office rents continue to rise across most European cities, driven by a persistent lack of new supply.
The vacancy gap between CBD and non-CBD locations continues to widen, reflecting the ongoing shift away from non-CBD areas.
The logistics market Is posting good resilience
Take-up increased by 20% in the leading European markets. The logistics market is showing great resilience maintaining a strong growth momentum in Germany, Poland, Spain and Italy. France and the Netherlands recorded encouraging signs with strong activity in Q2.
The Middle East crisis and its share of uncertainties has cooled investor confidence. At European level, prime logistics yield increased by 9 bps over last year. Movement ahead will depend on the ECB’s decisions on its policy rates and subsequent impact on 10-year government bonds.
Retail: Renewed Caution may lie ahead
External pressures on commodity prices and international trade may further affect consumer sentiment.
The sector's recovery as an investment asset throughout 2025 has lost momentum, given the stability observed in the first half of 2026. While shopping centre investment has continued to strengthen over the last 12 months, retail warehousing transactions have become scarcer.
Nevertheless, retail remains a core segment for investors, with the UK leading the market. This leadership is supported by a resilient demand for prime assets despite the broader economic headwinds.
Residential: Growing activity
Residential investment volume in Europe reached €27.3bn (+31.6% y/y) in H1 2026, thanks to a greater number of large-scale deals driving up residential volumes.
The European residential investment market experienced further investment interest from cross-border investors: 47% of real estate investment in Europe are cross-border.
House prices (4.5%) and rental values (3.4%) increased across the year to Q1 2026. Despite the ongoing regulations in Europe, rental values are still booming in most cities, reaching new record levels.