European commercial real estate (CRE) total returns accelerated into year-end 2025, with selectivity remaining a key driver of performance. This uptick is attributed to a combination of factors, including a decline in interest rates, an increase in rental yields, and a shift in investor sentiment towards core and core-plus assets.
The European CRE market has experienced a significant transformation over the past year, with investors becoming increasingly discerning in their investment choices. As a result, funds with strong track records and a focus on high-quality assets have outperformed their peers. For instance, funds managed by Blackstone and CBRE Investment Management have reported strong returns, driven by their strategic investment approaches. Meanwhile, publicly traded real estate companies such as $VONV and $LAND have also seen an increase in their stock prices, reflecting the optimism in the sector.
The acceleration in CRE returns is also attributed to the decline in interest rates, which has made debt financing more accessible and affordable for investors. Furthermore, the increase in rental yields has provided a boost to investment returns, as investors seek to capitalize on the growing demand for commercial space. According to a report by JLL, the European CRE market is expected to continue its growth trajectory, driven by the ongoing urbanization trend and the increasing demand for office and logistics space.
The key drivers of performance in the European CRE market can be seen in the following table:
| Category | 2024 Returns | 2025 Returns |
|---|---|---|
| Core Assets | 8.2% | 9.5% |
| Core-Plus Assets | 10.1% | 11.2% |
| Value-Add Assets | 12.5% | 13.8% |
The data suggests that core and core-plus assets have performed well, driven by their stable income streams and lower risk profiles.
Looking ahead, the European CRE market is expected to continue its growth trajectory, driven by the ongoing urbanization trend and the increasing demand for office and logistics space. As investors become increasingly selective, funds with strong track records and a focus on high-quality assets are likely to outperform their peers. The decline in interest rates and the increase in rental yields are expected to continue, providing a boost to investment returns.
⚡ Why it matters: The acceleration in European CRE total returns has significant implications for investors and the broader economy, as it reflects the growing demand for commercial space and the increasing attractiveness of real estate as an asset class.
📊 By the numbers:
8.2%: 2024 returns for core assets
9.5%: 2025 returns for core assets
10.1%: 2024 returns for core-plus assets
11.2%: 2025 returns for core-plus assets
🔗 Source: JLL
