European real estate: turning the corner
In a context marked by declining interest rates, easier access to financing, and a recovery in transactions, the outlook for real estate appears more favorable. European real estate can offer attractive relative value, supported by solid fundamentals, particularly in high-growth sectors such as logistics. James Seppala, Chairman of Blackstone Europe and Head of Real Estate Europe, shares his insights on this evolution and the opportunities it brings.
How is the market environment in Europe?
James Seppala: During 2025, market conditions have taken a positive turn, giving us greater confidence in the outlook. Interest rates have declined significantly—since peaking in 2023, the European Central Bank (ECB) has cut rates numerous times, bringing them to about half of what they were1.
With rates now steady, we expect the current spread between property yields and central bank policy rates to narrow over time, which could help lift asset valuations. Cheaper borrowing costs and increasing capital market activity are also giving investors more confidence and which is already translating into increased transaction activity2. We expect this momentum to keep supporting real estate values over time.
That brighter outlook comes after a tough period for commercial real estate. Over the last three years, values in certain cases adjusted quite sharply—even though operating performance remained healthy. We believe that real estate values have now largely bottomed out, helped by lower rates, limited new construction, and a stronger debt market. While we are not anticipating a rapid or abrupt rebound, we do believe the conditions for a steady recovery are in place. Today, if you compare private real estate values to high-yield bonds or equities, which have recovered meaningfully since their respective troughs, it’s clear the asset class offers attractive relative value and risk-adjusted returns3.
Which sector offers the best opportunities?
J.S: Logistics is a high conviction theme globally and benefits from strong secular tailwinds, driven by the way people shop and consume today. Long-term demand for the sector remains strong, with e-commerce penetration in Europe remaining about 45% lower than in the U.S. Rents are also relatively affordable—prime logistics rents in the U.S. are nearly double those in Europe—which suggests there’s room for further growth4 5.
We also observe robust demand driven by a combination of shifting global supply chains and rising infrastructure and defense spending across Europe. For example, the latter is creating new demand for industrial and logistics facilities to store and manufacture goods. According to Savills, a global real estate services provider6, the U.K. and Europe will need an additional 37 million square meters of space as a result—almost a 20% increase versus occupier demand in 2024. On the supply side, higher building costs are slowing new projects, with completions expected to drop by around 45% in 2025–2026 compared to the five-year average7. We continue to have strong convictions in the sector and are excited about deployment opportunities in 2026.
Sources
1. European Central Bank, as of November 30, 2025.
2. CBRE, as of September 30, 2025. European real estate investment volumes are 18% higher over the last twelve months compared with the previous twelve-month period.
3. As of September 30, 2025. Equities represented by MSCI Europe, high-yield bonds represented by the Bloomberg High Yield Index and real estate values represented by the Green Street Commercial Property Price Index for All Property. Comparisons shown are for informational purposes only, do not represent specific investments and are not a portfolio allocation recommendation.
4. Global Data, as of September 30, 2025. Continental Europe represents the weighted average of e-commerce penetration based on retail sales for Germany, the Netherlands, France, Spain and Italy. U.S. represents sales share of total retail sales excluding auto, gas and food services.
5. As of June 30, 2025. U.S. (California – Bay Area, California – LA, Miami, New Jersey, Seattle): CBRE, Cushman & Wakefield and Blackstone Proprietary Data. Continental Europe (Amsterdam, Madrid, Milan, Munich, Paris): CBRE. Prime rents represent Class A stock.
6. Savills is a global real estate services provider with ~42k employees globally
7. CBRE, as of June 30, 2025. Refers to 2025 – 2026 projected average new supply as a % of stock vs. 2020 – 2024 average new supply as a % of stock. Includes data for the U.K., Germany, the Netherlands, France and Italy. Figures shown are weighted averages based on country-level data, weighted by logistics exposure in Blackstone’s open-ended European Core+ funds (based on sqm owned).
Disclaimer: The information presented is not financial or investment advice and should not be relied upon for investment decisions. Opinions expressed reflect the current opinions of Blackstone as of the date hereof, based on the current market environment, and are subject to change. There can be no assurances that any of the trends described herein will continue or will not reverse.
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