According to Cushman & Wakefield, geopolitical uncertainty and higher borrowing costs are reshaping investor behaviour across the European commercial real estate (CRE) market.
While geopolitical tensions in the Middle East have slowed transaction activity, underlying market fundamentals remain resilient, supported by strong labour markets, constrained supply, and continued rental growth in prime assets and Grade A locations.
According to Cushman & Wakefield's latest Investment Atlas, the market continues to transition into a more mature phase of recovery. While identifying opportunities remains important, success increasingly requires precision, discipline and careful asset selection.
Recovery Continues Despite Macroeconomic Headwinds
Cushman & Wakefield's TIME Score[1], a cyclical positioning indicator for European real estate assets, edged down slightly to 3.0 in Q1 2026 from 3.1 in Q3 2025. Despite this marginal change, the market remains firmly within a stabilisation phase. The slight decline reflects a tighter financing environment.
At the same time, Cushman & Wakefield's Fair Value Index[2], which measures the relative attractiveness of pricing across Europe's prime office, retail and logistics markets, shows that 56% of European markets remain undervalued. This highlights the continuing investment potential across the region. However, the window for broad-based repricing is narrowing as more markets transition towards fair value and only a limited number are now considered fully priced.
The European Fair Value Index (FVI) fell to 74 in Q1 2026, down from 89 in Q3 2025, signalling a reduction in the degree of market undervaluation across the region. While European commercial real estate continues to offer attractive opportunities on a risk-adjusted basis, valuation gaps have narrowed across a growing number of markets. The correction has been driven by a combination of higher government bond yields and more subdued growth expectations.
"European markets remain attractive overall. As they move closer to fair value, conviction, confidence and asset selection become increasingly important drivers of returns," said Guilherme Neves, Senior Research Analyst, EMEA Forecasting at Cushman & Wakefield.
Scarcity of Opportunities
Logistics and retail assets continue to occupy the investment sweet spot in terms of both timing and fair value, offering attractive risk-adjusted opportunities. Meanwhile, residential and office assets remain within the investment "strategic matrix", where performance is increasingly determined by asset quality, location and cash-flow potential. The office sector remains highly selective, with demand focused on prime assets offering strong leasing prospects.
Recent repricing has been particularly evident in Germany, where around half of all markets have transitioned to fair value. The most significant valuation adjustments were recorded in Hungary and Italy. Including Hungary, Italy and Norway, the number of fully priced markets in Europe has risen to nine. This demonstrates how quickly pricing dynamics can shift in response to rising interest rates.
"With the market-wide repricing cycle largely complete, valuation levels are increasingly being shaped by asset-specific characteristics, such as quality, location and cash-flow strength, rather than by broad market movements," said Martin Belik, Head of Valuation & Advisory Germany at Cushman & Wakefield.
Financing: Debt Capital Supports Market Sentiment
Following a brief period of market caution triggered by geopolitical shocks, lenders have become significantly more active again. Capital availability remains deep and diverse across banks, debt funds and alternative lenders. Transaction volumes, however, continue to be constrained by a gap between buyer and seller pricing expectations.
"Debt capital has already moved first. Liquidity is available and financing conditions remain supportive. The open question is whether equity capital will regain the conviction needed to return to the market," said David Poremba, EMEA Debt Advisory at Cushman & Wakefield.
Strategic Shift Towards Cash Flow and Resilience
As valuation-driven gains become less pronounced, the report points to a clear shift in investor strategy towards income generation, operational execution and asset resilience.
Markets characterised by strong supply-demand fundamentals, sustainable rental growth and high-quality assets are expected to outperform in the next phase of the cycle. Some investors are doubling down on sectors such as logistics and residential, while retail assets have also regained favour. Increasingly, buyers are selectively targeting office opportunities where market fundamentals support long-term value creation.
"Volatility is not a new phenomenon, but the pace of change in the macroeconomic environment represents a new reality that demands a strategic response," said David Hutchings, Head of EMEA Investment Strategy at Cushman & Wakefield. He added: "The good news for investors is that real estate offers a range of levers that can be used to stabilise portfolio performance, but only if the right assets are selected to meet occupier requirements."
Selectivity Will Define the Next Phase
Looking ahead, Cushman & Wakefield expects the recovery of the European commercial real estate market to continue, albeit at a more measured pace. Investment success will increasingly depend on disciplined capital deployment, granular market selection and a focus on assets capable of delivering sustainable returns.
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[1] Cushman & Wakefield TIME Score (Timing Investment Market Entry/Exit Score): Measures cyclical market positioning on a scale from 1 (contraction) to 5 (expansion).
[2] Cushman & Wakefield Fair Value Index: Scores around 100 indicate undervaluation, while scores closer to zero indicate fully priced markets.
