Following substantial underperformance over the last few years compared to U.S. REITs, the tide is turning on Europe’s listed real estate (LRE) market.
Europe is presenting a more interesting investment story thanks to tailwinds for growth and opportunities to buy companies at a discount to net asset value (NAV). “From that perspective, if you think real estate is attractive, then REITs are doubly attractive. The REIT space has quite a bit going for it in Europe,” says Edoardo Gili, senior analyst, equity research and Pan-European sector head of retail, industrial and net lease research at Green Street.
Broadly speaking, Europe is garnering more interest from global investors in the wake of widespread uncertainty and volatility in U.S. equity markets resulting from tariff announcements and new policy moves by the Trump administration. For example, the year-to-date return for the S&P 500 is 2.7% as of June 10, compared to the European equivalent, the Stoxx Europe 600, at 8.1 “Clearly what’s been happening, even outside of the REIT world, is that there’s been a tiptoeing of capital to be outside of the U.S. into other geographies,” Gili adds.
The size of the European LRE market in developed markets is significantly smaller than the U.S., roughly $445.6 billion in market cap, of which $175 billion is REIT regimes specifically. Yet the sector is delivering strong performance of late, with plenty of investment opportunities across property sectors and different countries and regions within Europe.
The European LRE sector is generating double-digit returns year-to-date, with the FTSE EPRA Nareit Developed Europe Index up 20.5% as of June 9 compared to 2.3% in the U.S. for the FTSE Nareit All Equity REITs Index.
Recent capital raising activity reflects the growing investor appetite. In April alone, European property companies raised 2.4 billion euros, bringing the year-to-date total to over 8.7 billion euros, according to EPRA. “That’s a strong signal of market liquidity and investor willingness to support both refinancing and growth strategies,” says EPRA CEO Dominique Moerenhout.
Declining Dollar Provides Added Incentive
The recent decline of the U.S. dollar has the potential to further enhance the appeal of the European LRE market. “While the direct impact is not easily quantifiable across all sub-sectors, the currency shift has created a more favorable environment for European property companies, especially from the standpoint of foreign investors seeking diversification and improved returns,” Moerenhout says.
Year-to-date, the euro and the British pound have appreciated against the dollar. This currency strength has had a tangible effect on the total returns of European property companies and REITs, particularly when measured in dollar terms.
“For U.S.-based and other dollar-denominated investors, these gains are translating into enhanced portfolio performance, making European real estate assets more attractive in a global context,” Moerenhout says. “Beyond the currency effect, this appreciation also raises the visibility of European REITs in international portfolios, offering a competitive edge in an increasingly globalized investment landscape.”
A combination of factors, including currency-driven return enhancement, minimal U.S. dollar debt exposure, and a comparatively stable macro backdrop, are positioning the European LRE sector as a compelling option for global investors, Moerenhout adds. “As capital continues to seek resilient, income-generating assets, European REITs are in a good position to catch the eye of international investors looking for both performance and protection,” he says.
Positive Trajectory
The recent outperformance is a welcome shift from what has been a challenging environment for Europe’s LRE companies. Similar to the U.S., the European market has weathered a significant correction in asset values over the past three years on the back of higher interest rates. Value declines among European companies were magnified by higher leverage levels. The peak-to-trough decline in European REIT share prices was 45%, whereas it was closer to 30% globally, estimates Guy Barnard, co-head of global property equities and a portfolio manager at Janus Henderson Investors.
“We are now coming out of that decline. We’re seeing a stabilization in asset values, and signs of growth in the last six to 12 months are the first that we've seen for some time,” Barnard says. Landlords are regaining pricing power and pushing rental growth. In addition, Europe has not had the same volume of new construction activity as the U.S. in areas such as rental housing and industrial logistics real estate. “We think the trajectory for rents here could be even stronger than we see in the U.S.” he adds.
During the low-interest-rate environment, European real estate companies primarily grew from debt issuance rather than equity issuance. That created a problematic situation for higher-leveraged companies when interest rates started to rise in 2022, forcing them to focus on deleveraging rather than expansion. A fair amount of the deleveraging is now done. “Most companies can focus on streamlining their portfolios and looking at attractive, acquisitive growth, and hopefully, raising equity and expanding the index,” says Matthew Goulding, portfolio & regional manager, real estate securities at CenterSquare Investment Management.
Investors see a value opportunity with a number of companies that are trading at substantial discounts to NAV, roughly 25%-30% versus discounts of 5%-10% among U.S. REITs, according to Barnard. Additionally, the lower valuations are driving increased M&A activity. For example, LondonMetric Property PLC has been one active acquirer of late. In March, the REIT acquired Highcroft Investments PLC in a £43.8 million deal, and in May, the REIT announced its plans to acquire Urban Logistics REIT PLC in a deal valued at £698.9 million.
Private equity also recognizes the opportunities to acquire companies at discounts to market value. “The private equity market is saying there's a disconnect here between the price of real estate in the European REIT wrapper and the fundamental value of those buildings,” Barnard says. “As a result, they are coming in and consolidating the market, which frankly has been pretty unloved, and therefore is presenting them with an opportunity.”
Megatrends Shape the European Market
Investors are watching a number of megatrends influencing the European LRE market, including growth in the areas of specialization, internationalization, scale, sustainability, and innovation. Although Europe still has a sizable base of diversified companies, the region is rapidly embracing specialization. The share of the diversified sector in the European region has declined from 40.8% in May 2015 to 30% in the FTSE EPRA Nareit Developed Index.
REITs are reducing their non-core assets and focusing more on growth sectors as a way of generating better risk-adjusted returns for shareholders. MERLIN Properties, for example, is a diversified Spanish REIT with assets that include office, retail, and industrial. The company is reducing its exposure to office and increasing its focus on data centers. “Merlin is still going to be a diversified name, it's just increasing its focus on asset classes that are showing better growth opportunities,” Goulding says. Over time, he expects the data center income and earnings to grow to represent well over half the total for the firm.
European exposure on the global REIT benchmark has actually shrunk from around 30% in 2006 to around 14% today, largely due to outsized growth among U.S. REITs. The average market cap for a European REIT is about $2 billion while the average market cap for a U.S. REIT is more than $10 billion. However, the European market is seeing more momentum behind consolidation. Although public-to-private takeovers make up 40% of M&A transactions since 2020, public-to-public deals capture 78% of the total transaction value, according to EPRA.
The sector looks attractive, both from an absolute and relative basis, versus broader equities and its own history. “When you look at REITs versus private markets, you've got that discount with an added bonus of increased liquidity,” Goulding says. “So I think that the European REIT market is in a space, hopefully, where it can grow in size now and grow relative to the globe, rather than have this situation that we experienced where there was a lot of shrinkage.”
Good Supply-Demand Balance
Listed real estate companies also are benefiting from a relatively favorable macroeconomic environment. “The big picture story on demand and supply for real estate across the board is pretty good in Europe, and it’s probably a little bit more positive than in the U.S., where we think there is a bit more risk to rental growth,” Gili says. The outlook is more favorable for REITs on the continent versus the U.K., where interest rates remain higher. Europe has seen a number of rate cuts from every major central bank.
“While we hold no crystal ball, the near-term outlook for European LRE is cautiously optimistic, underpinned by improving fundamentals and macroeconomic tailwinds, yet tempered by some persistent global risks,” Moerenhout says.
One of the key supportive factors is the stabilization of property valuations across the continent, with early signs of recovery particularly evident in the residential, retail, and prime office sectors. Transaction volumes, while still trailing the 10-year average, are steadily climbing, signaling renewed investor confidence and healthier liquidity in the real estate markets.
Residential and office assets appear to be relative beneficiaries in the current macro environment, as they are less directly exposed to global trade frictions compared to the industrial sector. With inflation hovering close to central bank targets and monetary policy easing cycles nearing their end, the interest rate landscape is also becoming more predictable.
Biggest Challenges for REITs
Several headwinds remain in play. Rising government bond yields, particularly driven by Germany’s expansive fiscal policy, present a “double-edged sword,” according to Moerenhout. Rising bond yields support economic growth but also elevate financing costs for REITs and property companies. In parallel, geopolitical uncertainty, especially surrounding U.S. tariffs, continues to cast a shadow over financial markets.
Despite challenges, forward-looking forecasts remain encouraging. Oxford Economics expects total returns in dollars to reach 4.5% in 2025 and 5.6% in 2026. “The European listed real estate market is navigating a complex landscape with resilience, supported by a stabilizing market environment, cautious but steady policy signals, and growing investor interest in defensive, income-generating assets,” Moerenhout says.
Although REITs have made progress in de-levering balance sheets, they do have a bit more work to do. Debt to asset value today is at 35%-40%, which is down from 40%-45% three years ago but still higher than it is in the U.S. And net debt to EBITDA for European REITs is at 8x-9x versus 5x-6x in the U.S. “It’s partly because the markets have been different, but it's also that we probably need to do more to get those balance sheets in stronger shape,” Barnard says.
Some companies are doing a better job in sorting out their debt than others, Goulding adds. For example, German residential companies, although higher leveraged, generally have longer dated debt maturities. Other regions, such as the Nordics, still have a lot of short-dated debt maturities that are expiring. “So you have to take a different appreciated approach. But we have seen some equity raises, with money raised to fund growth in the alternative sectors, such as in data centers and within student accommodation in the last year,” Goulding says.
Another challenge for European REITs is fighting for relevance in a global investor’s opportunity set. Why come to Europe? Why come to a REIT? “We're a small part of the benchmark with smaller, less liquid companies,” Barnard says. “So it really is about the company presenting a growth story from here again, and we need to see more of that and companies getting back on the front foot–investing for growth and therefore presenting a more compelling story for investors.”
Barnard also believes that European REITs could learn from the evolution of U.S. REITs, which de-levered post-GFC and built really strong operational platforms that they're now leveraging with acquisitions and growth. “We're going to get there in Europe, and it's going to be quite an exciting story and journey over the next three to five years as we go through that process,” he adds.
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