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 鈥� a diffusion index designed to measure the direction of trends in the market 鈥� showed a second consecutive decline in June to 52.2 鈥� 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 鈥� new development, investment liquidity and economic subindicators 鈥� all fell below 50, 鈥減ointing to contraction and highlighting growing uncertainty surrounding the trajectory of market recovery鈥�.
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 鈥渁 disconnect with performance and sentiment鈥�, 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% 鈥� 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: 鈥淲hile 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.
鈥淚nvestors 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.鈥�
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