War and markets: can European real estate hold up?
17 APR, 2026
By Joanna Piwko from RankiaPro Europe
By Joanna Tano, Head of Research, European Real Estate, and Alex Dunn, Research Analyst, European Real Estate, at Columbia Threadneedle Investments
The current geopolitical landscape is continuously evolving, as demonstrated by the recent agreement between the United States and Iran for a two-week ceasefire aimed at ensuring the “safe passage” of ships through the Strait of Hormuz. Meanwhile, negotiations for a lasting agreement are ongoing. However, less than a week before the truce expires, a resolution to the conflict appears increasingly difficult, with conflicting messages from both sides reflected in the volatility of equity and bond markets.
Regardless of the final outcome, the overall trajectory of macroeconomic indicators is likely to be similar: slower growth and higher inflation are expected due to constraints in oil and gas supply, although a return to double-digit inflation as seen in 2022 is not anticipated.
Expectations for monetary policy have adjusted accordingly, now incorporating the possibility of interest rate increases in 2026. This marks a significant shift from earlier forecasts of rate cuts by the Bank of England and the ECB. This shift is reflected in a substantial increase in financing costs: five-year swaps in the UK and the Eurozone have risen by approximately 65 and 50 basis points respectively since the start of the conflict. However, policymakers are not starting from highly expansionary conditions: interest rates are close to neutral levels and labor markets have already softened. An aggressive tightening would require a persistent shock and clear evidence that inflation expectations are becoming unanchored.
Real Estate as a safe haven
Investors are well aware that we are heading toward an environment characterized by more modest growth and rising inflation, potentially accompanied by further fiscal stimulus and increased public spending as governments attempt to cushion the impact on households.
In this complex scenario, real estate could act as a safe haven for capital seeking protection from volatility. The advantages of this asset class are well known: contractual cash flows help dampen volatility compared to other risk assets and offer partial inflation protection (especially in the case of indexed lease agreements). In addition, there is potential for capital growth through active management, asset repositioning, and careful timing of investments. Real estate also provides diversification benefits and often behaves differently from equities and bonds, reducing overall portfolio volatility while improving risk-adjusted returns.
Currently, two cyclical factors are also supportive. First, the European real estate market is characterized by supply shortages, with demand for space exceeding availability in many sectors, thereby supporting and driving income growth. Second, investor demand is recovering from the cyclical low seen in 2023–2024: most investors are now favorably reassessing new allocations to this asset class.
Starting from this position of relative stability, any negative spillovers from the war are likely to be secondary (for example, risks to tenant solvency leading to higher credit costs) and mitigated by strong market fundamentals. Moreover, any price declines could be seen as attractive entry points for new investors.
Focusing on long-term trends is essential
Geopolitical shocks influence the timing and pricing of real estate markets, but not the long-term balance between supply and demand, which is driven by structural forces. Even during periods of volatility, long-term trends will continue to determine where people live and work, where goods are produced, and how they are transported. In our view, it is precisely during periods of crisis and high uncertainty that focusing on long-term trends becomes crucial.
Exposure to subsectors should be targeted, not generic. In retail, changing consumer behavior is polarizing demand toward two extremes: on one side, prime central locations with high footfall, often supported by tourism; on the other, retail parks that offer value propositions in a more selective consumption environment. In this segment, we believe expansion strategies should focus on high-footfall locations, where low vacancy rates and limited opportunities require quick decision-making and forward planning, while retail parks with repositioning potential are attractive if supported by solid or growing catchment areas.
In the industrial and logistics sector, the growth of omnichannel delivery and the need to make supply chains more efficient and resilient—also through near-shoring—are driving demand for space. Particularly attractive are modern mid-sized logistics assets along key transport corridors, as well as assets located near strategic infrastructure nodes such as airports and ports. At the same time, opportunities are emerging in multi-let industrial properties and secondary assets with rent review clauses. In addition, access to energy is becoming an increasingly decisive factor for long-term investment sustainability.
In the office segment, the return to in-person work is concentrating demand on well-located buildings in central business districts, with occupiers increasingly focused on high-quality spaces equipped with services capable of attracting and retaining talent. In our view, the focus should be on high-quality assets or those that can be upgraded according to ESG criteria, while the risk of obsolescence is increasing for older properties and secondary locations.
In the living sector, the persistent imbalance between supply and demand, exacerbated by the shortage of adequate properties in terms of quality and location, continues to support the market. Population aging is driving demand for specialized housing solutions, while underinvestment in student housing highlights selective opportunities. We believe that, despite some easing in affordability pressures thanks to wage growth and rental regulations, new supply will remain limited, leading to steady rent growth for both multifamily and single-family housing. There is particular interest in student accommodation in cities with multiple universities and housing shortages, as well as tactical allocation in senior housing, where pricing is attractive but requires careful selection of high-quality, well-managed assets.
Finally, in the hospitality sector, tourism remains the primary driver, but prospects are further supported by the recovery in business travel and international events, expected to exceed pre-pandemic levels. In this context, we believe both budget and luxury hotels located in business hubs or established tourist destinations offer attractive opportunities. However, performance will remain uneven: major European cities with international connectivity are likely to continue favoring high-end assets due to stronger pricing power, while the mid-market segment may face pressure from rising operating costs and margin compression.
Conclusions
Although the conflict in the Middle East is increasing geopolitical volatility and macroeconomic uncertainty in the short term, its implications for the European real estate sector are likely to be indirect and manageable.
Slower growth, moderately higher inflation, and evolving monetary policy expectations may affect pricing and financing conditions, but strong fundamentals, supply constraints, and recovering investor interest support the sector’s resilience.
Real estate’s income characteristics, diversification benefits, and partial inflation protection continue to underpin its role in portfolios, with any short-term price declines potentially creating attractive entry points. Fundamentally, long-term demand will continue to be driven by structural trends rather than geopolitical shocks, favoring precise and selective exposure over broad sector positioning.
The real risk is not volatility, but ignoring long-term fundamentals during periods of volatility.
