Investor sentiment towards European real estate markets has fallen for the second quarter in a row, despite investment performance improving this year, according to European real estate fund association INREV.
Its quarterly consensus indicator – a diffusion index designed to measure the direction of trends in the market – showed a second consecutive decline in June to 52.2 – from 56.7 in March.
According to INREV, a headline figure above 50 represents above growth and a reading below 50 indicates contraction. The association said that June 2025 marked the first time since March 2024 when all three subindicators – new development, investment liquidity and economic subindicators – all fell below 50, “pointing to contraction and highlighting growing uncertainty surrounding the trajectory of market recovery”.
The declining sentiment contrasts with recent speculation about the potential for Europe to act as a safe haven and to benefit from capital flows reallocated from the US.
INREV said the research suggested “a disconnect with performance and sentiment”, pointing to a recovery in the market captured by its quarterley fund index. In Q1, the index posted a positive total return of 1.04%, including capital growth to 0.56% – the strongest performance by the market since Q2 2022.
Even the office sector, which had posted several quarters of negative asset-level returns, returned to positive territory, posting 1.11% in Q1 2025. Residential and retail performed the best, at 2.03% and 1.99%, respectively, and student housing and industrial/logistics followed closely with returns above 1.8%.
Despite this, sentiment towards retail dropped 16% quarter on quarter to 6%, while net sentiment towards offices turned negative at -10%.
Student housing overtook traditional residential in the latest quarter, capturing 26% of net interest, an increase of 14% since March. Residential followed closely with 25% of participants indicating plans to increase their allocation, broadly in line with its long-term average of 26%.
Twelve investors and 20 fund managers took part in the consensus indictator.
Iryna Pylypchuk, head of research and market information at INREV, said: “While European real estate has maintained positive performance, market participants remain prudent, behaving on a side of caution. The latest INREV Consensus Indicator highlights growing uncertainty surrounding the trajectory of market recovery, uncovering a lack of consensus as market bifurcation intensifies.
“Investors should keep in mind that Europe is leading the global recovery cycle. Current market inertia presents a timely window for new opportunities, even though recovery may be more protracted, the turnaround might happen faster than current sentiment predicts.”
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