Business

Selective sector focus accelerates European real estate recovery amid evolving investor tactics

Friday, 7 November 2025 5:08AM UTC

Investors are shifting towards targeted, sector-specific strategies in European real estate, capitalising on structural growth opportunities despite macroeconomic challenges, with data centres and logistics leading the way, says Principal.

In the evolving landscape of private markets, a selective and sector-focused approach is gaining prominence among investors targeting European real estate. The region offers renewed opportunities for those who carefully identify assets grounded in strong fundamentals and structural growth potential, according to experts at Principal, a leading global real estate and private markets manager.

The same macroeconomic and geopolitical challenges that have contributed to market volatility and inflation pressures have also driven investors towards greater portfolio diversification. This trend has notably benefited private market assets. However, as portfolios grow more complex, the emphasis is shifting from broad diversification to targeted strategies within sub-asset classes. Thomas Cheong, Principal’s president for Asia Pacific and the Middle East, highlights that the backdrop for private market investments is continually changing, urging investors to adopt more disciplined, sector-specific tactics, particularly in real estate.

Principal’s broad capabilities across both public and private real estate markets enable tailored solutions aligned with specific investment goals. With over 60 years of experience and upwards of US$100 billion in assets under management, the firm leverages its scale and expertise to access distinctive deal flow and execute effectively, a critical advantage in the current environment, according to Munirah Khairuddin, Principal’s CEO and head of Principal Asset Management Berhad.

Within Europe, the office sector has exhibited mixed performance, partly due to ongoing shifts toward remote working. Nonetheless, other segments like logistics, data centres, hospitality, and residential housing are showing greater promise. Giles Smith, Principal’s head of fund and product management in Europe, notes that the recent softening of yields in alternative asset classes, coupled with renewed bank lending, is making European real estate more attractive. He points to specific sectors and geographies for investment, such as logistics facilities that meet modern e-commerce and ESG standards; data centres benefiting from exponential growth in digital data and constrained supply; hotels capitalising on tourism and changing service models; and residential properties addressing supply-demand imbalances in cities including the UK, where build-to-rent is still developing.

Data centres, in particular, stand out as a sector with significant growth potential, driven by expanding digital consumption and cloud usage. Sebastian Dooley, a senior fund manager based in the UK for Principal, forecasts sustained demand surpassing supply in 2025 and beyond, especially in secondary European markets like the Nordics and Southern Europe. Despite challenges posed by limited space and power in prime locations and the nuanced demand from artificial intelligence adoption, innovations such as modular construction are helping to meet evolving requirements.

The broader European real estate market is also benefiting from factors such as supply constraints linked to land availability and robust governance frameworks, enhancing its appeal as a diversification play. This is underscored by recent high-profile transactions, such as Blackstone’s acquisition of the historic Centre d'Affaires office building in central Paris for around €700 million, signaling renewed investor confidence in premium office assets following pandemic disruptions.

Meanwhile, government and demographic trends influence residential markets strongly. Germany illustrates this with a pressing need to build approximately 320,000 new apartments annually to meet demand, significantly outpacing current construction permits. However, higher interest rates and inflation control measures have slowed development, highlighting ongoing challenges within the residential sector.

Looking ahead, industry reports underscore a cautiously optimistic recovery across European real estate in 2025. Analysts expect a 15% rise in investment activity across offices, residential, and logistics, buoyed by improving economic conditions and more favourable interest rates. Prime assets and cities such as London, Madrid, and Paris are positioned to lead this resurgence, benefiting from strong macroeconomic fundamentals and quality of life factors.

In this context, Principal's selective, research-driven approach, focused on sectors with durable growth trends and structural advantages, aims to deliver differentiated value for investors navigating the complex European real estate market. Their insights, shared recently across Singapore and Kuala Lumpur, emphasize the importance of disciplined strategy amid changing market dynamics and reinforce Europe’s continued status as a vital component of global real estate investment portfolios.

📌 Reference Map:

^[1] (Mingtiandi) - Paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9
^[3] (CNBC) - Paragraph 10
^[4] (PwC) - Paragraph 11
^[5] (Reuters) - Paragraph 12
^[6] (Reuters) - Paragraph 13
^[7] (Mingtiandi) - Paragraph 1, 3

Source: Noah Wire Services

More on this

https://www.mingtiandi.com/sponsored/taking-a-selective-approach-to-european-real-estate/ - Please view link - unable to able to access data
https://www.mingtiandi.com/sponsored/taking-a-selective-approach-to-european-real-estate/ - This article discusses the importance of a selective, sector-specific approach to European real estate investment. It highlights how macroeconomic and geopolitical factors have led investors to diversify portfolios, with private market assets benefiting notably. The piece emphasizes Principal's strategy of focusing on assets with strong fundamentals and structural growth potential, leveraging over 60 years of experience and more than US$100 billion in real estate assets under management. It also outlines key investment opportunities in logistics, data centres, hotels, and residential sectors, particularly in Europe.
https://www.cnbc.com/2025/01/03/europes-real-estate-recovery-looks-set-to-pick-up-steam-in-2025.html - Analysts predict a recovery in Europe's real estate sector in 2025, with investment activity expected to increase by 15%. This growth is anticipated across office, residential, and logistics markets, driven by factors such as interest rate reductions and improved economic conditions. The article notes that prime assets are projected to deliver the strongest performance, with leasing activity in the office sector rising due to return-to-office mandates.
https://www.pwc.ie/media-centre/press-releases/2024/emerging-trends-in-real-estate-europe-2025.html - PwC's report identifies London, Madrid, and Paris as the top three cities for real estate investment in 2025. London retains the top position for the fourth consecutive year, while Madrid's rise to second place is attributed to strong macroeconomic factors and quality of life. The report also highlights the recovery of German cities like Munich, Frankfurt, and Hamburg, and notes the decline in appeal of Dublin and British provincial cities.
https://www.reuters.com/markets/europe/germany-must-build-320000-apartments-yearly-meet-housing-demand-study-shows-2025-03-20/ - A study by Germany's Federal Institute for Research on Building, Urban Affairs, and Spatial Development reveals that Germany needs to construct 320,000 new apartments annually until 2030 to meet growing housing demand. In 2024, only 216,000 apartments were permitted, the slowest pace since 2010. The downturn is attributed to interest rate hikes by the European Central Bank aimed at curbing inflation, leading to halted construction projects and increased insolvencies in the sector.
https://www.reuters.com/business/finance/blackstone-buys-819-million-trophy-paris-office-2025-09-03/ - Blackstone has acquired the historic Centre d'Affaires building in central Paris for approximately €700 million ($819 million), signaling renewed investor interest in premium office properties post-pandemic. The 41,000 square meter building includes office space and 57 luxury apartments. This transaction reflects increased confidence in the European office market, despite a pandemic-induced downturn in global office demand.
https://www.mingtiandi.com/sponsored/taking-a-selective-approach-to-european-real-estate/ - This article discusses the importance of a selective, sector-specific approach to European real estate investment. It highlights how macroeconomic and geopolitical factors have led investors to diversify portfolios, with private market assets benefiting notably. The piece emphasizes Principal's strategy of focusing on assets with strong fundamentals and structural growth potential, leveraging over 60 years of experience and more than US$100 billion in real estate assets under management. It also outlines key investment opportunities in logistics, data centres, hotels, and residential sectors, particularly in Europe.

Noah Fact Check Pro

The draft above was created using the information available at the time the story first emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed below. The results are intended to help you assess the credibility of the piece and highlight any areas that may warrant further investigation.

Freshness check

Score: 8

Notes: The narrative was published on 7 November 2025, making it current. The content appears original, with no evidence of prior publication. The article is based on a press release from Principal, which typically warrants a high freshness score. However, the report includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged. Additionally, the article includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged. ([mingtiandi.com](https://www.mingtiandi.com/sponsored/taking-a-selective-approach-to-european-real-estate/?utm_source=openai))

Quotes check

Score: 9

Notes: The direct quotes from Thomas Cheong, Munirah Khairuddin, Tan Yo-Hann, and Giles Smith are unique to this report, with no identical matches found in earlier material. This suggests potentially original or exclusive content.

Source reliability

Score: 7

Notes: The narrative originates from Mingtiandi, a reputable platform for real estate investment news. However, it is a sponsored feature, which may indicate potential bias. The report references Principal, a leading global real estate and private markets manager, enhancing its credibility.

Plausability check

Score: 8

Notes: The claims about the European real estate market align with recent trends, such as the impact of remote working on office space demand and the growth of logistics and data centre sectors. The article includes specific data points and quotes from industry experts, adding credibility. However, the tone is promotional, which may affect objectivity.

Overall assessment

Verdict (FAIL, OPEN, PASS): OPEN

Confidence (LOW, MEDIUM, HIGH): MEDIUM

Summary: The narrative is current and appears original, with unique quotes and references to a reputable organisation. However, the reliance on a press release and the promotional tone suggest potential bias. The inclusion of updated data alongside recycled material warrants further scrutiny.

European real estate
private markets
sector focus