European real estate has continued to recover in 2026, but the driver of that recovery is changing. After an initial phase marked by valuation adjustments and expectations of a more favourable interest-rate environment, there is increasingly less room to rely solely on the overall momentum of the market.
Cushman & Wakefield’s European Investment Atlas Q1 2026 clearly reflects this transition. The market remains in a stabilisation phase, with still-resilient occupancy fundamentals and rental growth in prime assets. However, geopolitical volatility, the rebound in government bond yields and a less favourable outlook for interest rates have reduced the potential for further yield compression.
In other words: if the market is no longer willing to pay increasingly more for the same euro of income, value creation depends to a greater extent on ensuring that the asset generates more income, maintains demand and is well managed.
The recovery continues, but loses part of its tailwind
Cushman & Wakefield places the European TIME Score at 3.0, still within the stabilisation phase. At the same time, its Fair Value Index has declined compared with previous levels, a sign that part of the repricing opportunity has already been captured.
Even so, the market is far from fully adjusted. 56% of the markets analysed by the index are still classified as undervalued, although an increasing number are moving closer to levels considered fair.
The nuance is important. This does not mean that 56% of European real estate assets are “cheap”, but rather that, within the prime office, retail and logistics markets analysed by Cushman, there are still segments where the expected return stands above what the model considers appropriate for their level of risk.
The window of opportunity remains open, but it is narrowing. According to the report, numerous markets have moved from being clearly undervalued to being closer to fair value.
From repricing to income growth
This transition changes the investment logic.
In an initial recovery phase, part of the return can come from a fall in the yields required by the market. When that happens, the value of an asset can rise even if its income remains practically stable.
But as valuations normalise, that mechanism loses strength.
Cushman summarises the next stage around three variables: income growth, asset quality and operational execution.
This means that greater weight is placed on the ability to:
- increase rents;
- improve occupancy;
- reposition assets;
- adapt the property to new demands;
- or manage its operation more efficiently.
It is less about timing the cycle correctly and more about identifying assets capable of generating a real improvement in their cash flow.
Logistics and retail start with an advantage; offices require more selection
The report currently places logistics and retail in what Cushman calls the investment sweet spot: markets where the combination of cycle timing and relative valuation is particularly favourable.
Residential and offices, by contrast, remain in a more strategic zone, where the opportunity exists but depends to a greater extent on selection.
In offices, this dispersion is particularly clear. Building quality, location and commercialisation prospects are creating increasingly wide differences between prime assets and more obsolete product.
The same trend appears in Cushman’s report on Southern Europe. In Italy and Portugal, investors continue to show a preference for prime offices and repositioning opportunities. In Spain, interest is increasing in Core+ and value-add operations.
The consequence is clear: talking about “offices”, “retail” or “logistics” as homogeneous categories is becoming less and less useful. Two assets within the same segment can offer very different risk profiles and value-creation potential.
Financing is available, but price remains the point of friction
Another important element of the report is that financing remains available.
After an initial pause associated with the rise in geopolitical tension, banks, insurers and alternative lenders have resumed activity. Cushman notes that liquidity remains deep and diverse, although credit discipline has tightened.
The main obstacle for many transactions is therefore not the absence of debt, but the mismatch between buyer and seller expectations.
There is capital willing to invest and financing available, but there is not always agreement on how much the asset is worth.
This is compounded by a recovery in capital raising and in institutional allocations to real estate. In other words, money continues to accumulate while waiting to find transactions that offer a sufficiently attractive risk-return profile.
Spain accelerates: more investment and more repositioning
Southern Europe’s performance helps bring this trend down to earth.
Spain, Italy and Portugal recorded 18.2 billion euros of real estate investment in the first half of 2026, 39% more than a year earlier. Spain accounted for approximately half of the regional volume.
Specifically, investment in Spain reached 9.1 billion euros, also 39% higher year-on-year. Residential and hospitality led activity, with 2.8 and 2.6 billion euros, respectively.
The figure is relevant because it confirms that greater selectivity does not mean a lack of investor appetite. Capital continues to flow in, but it is doing so in an increasingly discriminating way.
Cushman also highlights the growing importance of repositioning strategies. In Madrid alone, since 2024, more than 1.1 billion euros have been invested in the conversion of obsolete offices into residential and hotel uses.
That figure sums up the new stage well: part of the value no longer comes simply from waiting for the market to improve, but from actively transforming the asset.
Living and hospitality gain weight in operational real estate
The Spanish case also shows another relevant change: the growing weight of so-called operational real estate.
Residential and hospitality were the two largest recipients of investment in the first half of the year. Cushman attributes part of this growth to robust demand and interest in platform strategies and long-term exposure to the living sector.
In this type of asset, selection no longer depends solely on the location or the building. The operating model, the operator’s capabilities, occupancy, pricing and management quality also matter.
The same is true in Italy, where data centres, living and other alternative assets continue to attract capital precisely because of their operational component and growth potential.
This fits with a broader trend: the smaller the margin to gain simply through repricing, the more important what the investor can do with the asset becomes.
The cycle recovery is no longer enough
European real estate continues to recover, but the nature of that recovery is changing.
There are still markets with attractive valuations and enough capital to finance new transactions. However, as prices move closer to more balanced levels, the possibility of generating returns solely through further yield compression decreases.
The next phase will depend more on how much income can grow, the quality of the asset and the investor’s ability to manage, reposition or transform it.
The cycle still matters. But getting the cycle right is no longer enough. In a more selective market, the difference will increasingly lie in choosing carefully what to buy and knowing what to do afterwards with that asset.
