Forecasts

Office and retail will drive real estate investment in Europe in 2026

Aew estimates that investment volume will rise to EUR 220 billion in 2026, up from the EUR 200 billion forecast for 2025 and the EUR 185 billion recorded last year

by Nicol Degli Innocenti

4 December 2025

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2' min read

Translated by AI

Versione italiana

2' min read

Translated by AI

Versione italiana

A recovery is in sight for the European commercial real estate market: it will be driven by the hitherto 'Cinderella' sectors such as office and retail, according to the countervailing view of Aew, which has just presented its 2026 European Annual Outlook. Aew's forecast is that the volume of investment will rise to EUR 220 billion in 2026, up from the EUR 200 billion forecast for 2025 and the EUR 185 billion recorded last year.

"We see clear signs of recovery," said Christina Ofshonka, chief investment officer Europe at Aew. "We believe that the valuation revisions have now ended and investor confidence has grown to the point where they can now make decisions.

As the recovery gains momentum, the number of international investors interested in the European real estate market will increase. Attracting them will be possible yields, rising rents and continued strong demand.

"The combined impact of rising market rents and shrinking yields will lead to European prime real estate yields averaging 8.4 per cent per annum over the next five years," explained Hans Vrensen, Head of Research and Strategy at Aew Europe. Prime offices will provide the best returns, while among countries it will be the UK that will record the best returns.

The UK market will have the best performance in Europe, according to Aew, with expected average annual returns of 10.3 per cent, thanks mainly to the reviving office sector. Aew is practising what it preaches and investing in prime office space in central London.

"We have convinced German institutional investors to bet on prime office space in the British capital," said Jeffrey King, head of fund management in Germany at Aew. "It is not always easy for investors to get out of their 'comfort zone', but we believe very much in the opportunity of rising rents.

The office sector has fallen out of favour since the pandemic, affected by the spread of remote working, with rising vacancy rates and an ever-widening gap between the few new, modern and 'green' offices in the city centre and the many older offices in suburban areas that are in danger of becoming obsolete.

According to Aew, however, the downward trajectory is over and, as not enough new offices have been built to meet demand, the gap between 'A' and 'B' offices will also narrow. The forecast is that the average vacancy rate in Europe, currently 8.1 per cent, will drop to 6.3 per cent by 2030.

"Market fundamentals have improved and investor interest in office and retail is returning to the levels shown in the residential or logistics sectors," said Vrensen. "One should not look in the rear-view mirror but look ahead, and then one can see the recovery of the office sector. Too many companies have reduced their space too much in recent years and now do not have enough desks for employees'.

In Aew's ranking of the sectors that will offer the best returns in Europe, prime offices are in first place with an expected 9.3 per cent per annum over the next five years, while shopping centres are in second place with average returns of 8.6 per cent.

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