As Europe’s commercial real estate market undergoes its sharpest correction in over a decade, analysts from leading firms including JLL, CBRE, Savills, and MSCI now agree: most commercial assets across Europe are currently undervalued. Triggered by rising interest rates, structural changes in tenant demand, and shifting capital market dynamics, this undervaluation is creating significant opportunities for well-capitalized investors.
In some sectors and geographies, assets are trading 15% to 40% below their peak values — a rare window in what has historically been one of the world’s most stable real estate markets.
Interest Rates and Risk Repricing: The Key Drivers
The European Central Bank’s response to inflation has been central to this repricing cycle. Since 2022, the ECB has steadily raised rates, pushing its benchmark to 4.25% by mid-2025. As a result:
- Debt costs have soared for asset owners
- Refinancing has become difficult or impossible in many cases
- Buyers have adopted more conservative underwriting assumptions
Office and retail assets have been the hardest hit, especially in secondary locations or in buildings requiring capital expenditure to meet ESG regulations. According to MSCI’s Europe Real Assets Index, prime office values across major European cities have declined by an average of 23% since 2021.
Where the Discounts Are Deepest
Analysts highlight a number of European countries where undervaluation is most pronounced:
- Germany – Office buildings in Frankfurt, Berlin, and Munich are down 30–35% from their highs, with yields rising to 5.5% or more
- France – Prime Paris remains resilient, but regional retail and hospitality assets have dropped by 20–30%
- Spain and Portugal – Hotel and serviced apartment assets are selling at discounts of 35–40%, especially outside core tourist zones
- Italy – Milan has held relatively firm, but Bologna and Genoa have seen 25%+ value declines
- CEE markets – Poland, Hungary, and the Czech Republic are seeing drops of 15–25% due to higher financing costs and currency volatility
Logistics Holds Up — But Isn’t Immune
Logistics and industrial assets remain more resilient thanks to continued e-commerce demand. However, even this sector has seen pricing come down by 10–15%, with yields now typically ranging between 4% and 4.5%.
For example, a last-mile logistics facility in Greater Paris that sold for €2,800/m² in 2021 might now be valued closer to €2,400/m², depending on tenant profile and lease length.
What Experts Are Saying
According to Savills’ latest investment report:
“Valuations today are being driven more by sentiment and capital market dislocation than by asset fundamentals.”
Andrew Hilton, Head of Capital Markets at Savills Europe, notes that many investors are pausing not because the properties lack merit, but because financing is prohibitively expensive and volatility remains high.
CBRE concurs, reporting that average prime office yields in core Western European cities have climbed from 3.25% to 5.25%, creating a more balanced risk-reward profile for long-term investors.
Recent Transactions Reflect the Shift
Despite overall transaction volumes remaining below historical averages, 2025 has seen a number of major deals at discounted prices:
- KKR purchased a landmark office in Amsterdam for €310 million, reflecting a 22% discount to the previous valuation
- Allianz Real Estate committed €470 million to logistics portfolios across Central Europe
- Brookfield is reportedly acquiring a business park portfolio in Germany at a 35% markdown
- Nuveen launched a €600 million fund targeting distressed assets and value-add opportunities
These transactions demonstrate that institutional capital is ready to act — at the right price.
Who’s Buying — and Why
The following investor types are best positioned to benefit from the current market:
- Private equity firms with experience in distressed asset turnarounds
- Long-term institutional investors such as pension funds seeking high-yield, inflation-hedged assets
- Core-plus and value-add managers focused on ESG upgrades and repositioning
- Sovereign wealth funds and other cash-rich players not reliant on debt
In contrast, highly leveraged investors and developers relying on short-term debt are being forced to sell or delay projects, contributing to falling valuations.
Risks and Considerations
While the market is rich with opportunity, analysts urge caution:
- The cost of ESG compliance is high, often ranging from €500 to €1,500/m², depending on the building
- Occupier demand remains weak in some office submarkets, especially for older properties
- Further rate hikes or prolonged stagnation could delay a full recovery
- Regulatory and political risks, especially in relation to green building codes and rent control, may affect returns
A Turning Point?
Some market watchers believe we are nearing the bottom of the cycle. According to JLL:
“The gap between buyer and seller expectations is narrowing. We expect more activity in Q4 2025 and early 2026 as repricing stabilizes and capital flows return.”
This would mark a shift from defensive capital preservation to opportunistic acquisition — a strategy that proved highly successful during the 2009–2011 recovery.
Conclusion
Analysts broadly agree: most European commercial assets are undervalued in 2025. This is not a sign of collapse, but of a necessary market correction — one that reflects new interest rate realities and evolving tenant expectations.
For investors with liquidity, operational expertise, and a long-term horizon, the current environment presents one of the best buying opportunities in over a decade. But success will depend on selecting the right assets, markets, and value-add strategies in a fundamentally altered investment landscape.
