Emerging from stagnation: Despite the turmoil of 2025
Institutional Real Estate, Inc.
Heading into 2026, the global scene is once again marked with hot wars, taut geopolitical tensions, straitened governments, and an undulating landscape for global trade and tariffs.
Central banks have largely concluded their recent rounds of rate cuts, while tighter money is on the agenda in Japan and possibly elsewhere as tenacious post- pandemic-era inflation persists in some economies. Nations’ borrowing costs, and bond yields generally, may rise uncomfortably if financiers grow concerned about government debt repayments.
Subdued global economic growth is expected in 2026, while some institutional property market segments, such as U.S. offices and central business districts, are still under duress. China’s housing and commercial property markets remain seriously pressured, and Europe struggles with beleaguered government budgets, heavy taxes, stricter banking regulations and a grave battlefield on its Eastern border.
The challenge for institutional property investors in 2026 will be to fashion portfolios or hedges to negotiate the year, while seizing opportunities that inevitably arise in any large-scale markets under moderate duress, say experts. And despite some misgivings, there are real estate veterans who contend the long mid-2020s grind in commercial property may be finally edging into its final rounds, offering selective opportunities.
Moreover, global gross domestic product (GDP) is expected to expand by 2.7 percent in 2026, forecasts the World Bank, in line with many other outlooks.
In short, the year ahead is not expected to be an unpleasant reprise of 2008 or 2020, but there will be plenty of thorns among the roses.
Europe’s tepid mood
European property investors have downgraded 2025’s mild optimism to pragmatism, according to the 2026 iteration of Emerging Trends in Real Estate Europe, published by the Urban Land Institute (ULI) and PwC.
“The overriding sentiment for European real estate in 2026 is shifting from last year’s cautious optimism to something more pragmatic, with the likelihood of renewed investment activity once again tempered by economic uncertainty and geopolitical tensions,” reports ULI, citing its annual industry surveys.
Despite the tepid mood, European GDP is expected to expand in 2026, albeit slowly. “There are modest growth forecasts of roughly 1.1 percent for the European Union, 0.9 percent for the euro zone and the United Kingdom, although Germany may just tread water,” says Andy Klein, managing director and co-head of investments at Lionheart Strategic Management.
As with other continental-scale property markets, Europe offers sectors with upsides amid the general stasis, he adds. “The continent’s inflation rate has stabilized near 2 percent,” Klein explains.
“Additionally, sectoral opportunities in living, logistics and data centers, combined with nearshoring and military buildup, reinforce Europe’s position as a relatively stable alternative amid U.S. political volatility and Asia’s trade exposure.”
Another headwind for European property markets in 2026 might be found on the financing side. “The implementation of Basel IV and CRR III (Capital Requirement Regulations III) will further increase the requirements of banks in 2026, which will have a noticeable impact on lending,” advises the Germany-based Asset Physics research house. In brief, under Basel Committee guidelines, European banks will have to set aside relatively more reserves when making property loans, and even higher amounts for loans perceived to be risky, based on loan-to-value ratios and other criteria. That will tend to cramp lending in 2026.
There is little disputing European real estate has, in general, been on a long sideways trundle through the bulk of the 2020s. The European REIT Index (REITE) — if such benchmarks can still be trusted as accurate proxies for the market — was marginally lower in December 2025 than a year earlier, and down about 15 percent from five years ago. In any event, buyers in 2026 will have the comfort of knowing they did not acquire assets at the top.
Still, institutional property buyers will have to exercise caution in 2026, advises Richard Barkham, former chief economist of CBRE, and professor at the University of North Carolina and senior fellow and lecturer in real estate at Harvard University. Given huge government IOUs, national leaders in Europe will have to scale back spending, or tax more, and either could trigger a recession sometime before 2030, he warns.
“For now, the advice is for highly selective investing only,” says Barkham. The veteran economist also warns of possible “bond yield spikes” due to stressed debt markets, rising cap rates, and attendant property-investor caution.
Other experts say Europe has opportunities in the present, with values having already drifted or declined for too many seasons. “With corrected valuations in Europe and strong rental growth for good-quality assets, investments made today will likely prove to be a good vintage from a cyclical timing perspective,” asserts Justin Curlow, global head of research and strategy, AXA IM Alts.
European nations are weaning off Russian fossil fuels, and building renewable-energy and defense industries, and more continental government pro-growth initiatives are on the table, adds Curlow.
Bright spots in European property in 2026 will be the cities of London, Paris, Madrid, Berlin and Amsterdam, and by sector, data centers, new energy infrastructure and student housing, reports ULI.
“The fundamentals in Europe or elsewhere have not really changed,” advises Shiraz Jiwa, CEO, Valesco Group. “The focus needs to be on building a portfolio of future-proofed assets, and employing a hands-on approach to deliver a high-quality, differentiated experience to your tenants.”
Asia Pacific: A tale of two worlds
For Asia Pacific there is better news, with the regional economy expected to expand by 4.3 percent in 2026, while that of mainland China is projected to grow by 4.4 percent, according to S&P Global’s latest outlook.
But for the property sector, the Asia Pacific of 2026 remains a tale of two worlds: on the one hand, China, with its waterlogged commercial and residential property markets, and on the other, the rest of the region, in which growing incomes undergird property values.
How tough have the past five years been for China real estate?
The Hang Seng Mainland Properties Index, composed of the 10 largest publicly traded companies in China, struck 7,951.22 on the first day of trading of 2020. But by late 2025 the index traded near 1,573.53, at a near 80 percent decline. If there is relief coming, it might not be in 2026. “Mainland China’s office market has been in a prolonged downturn since 2018,” wrote Capital Economics in late 2025. “We expect this pattern to persist, driving further falls in rents and capital values through to at least 2027.”
And Chinese housing is similarly gloomy, with expectations for softer values through 2027, extending declines that began in 2021, according to UBS Group. The housing problem is vexing, as it holds back consumer spending with homeowners feeling less wealthy every year, undercutting overall economic growth in the nation. “Can the Chinese actually get consumption growth on a long-term sustainable growth trend?” asks Barkham. “So far, not so good.”
In another sign of the times, bonds issued in 2017 by China Vanke, once China’s largest property developer, traded for 23 cents per dollar of face value in late 2025, as the real estate concern sought renegotiated terms from bondholders.
Though by far the regional economic behemoth, China is not all of Asia Pacific. One proxy for the Japan market, the Tokyo Stock Exchange REIT index, was up 22.1 percent in the 12 months to December 2025, while Seoul’s grade A office market features vacancies near 3 percent and rents are rising by 1 percent a quarter, reports CBRE.
Property investors need to tread carefully, even in a growing Asia, in 2026, say experts. “Asia remains resilient but vulnerable to external shocks,” says Klein of Lionheart Strategic Management.
Though the Trump Administration trade and tariff gyrations appear to have settled down, tensions among Beijing, Tokyo, Taiwan and Washington, DC, could flare up at any time, with consequences for property owners, from plebeian warehouses to five-star hotels. And in the long run, the Asia Pacific nations, including China, Japan and South Korea, have shrinking populations and workforces. The “longer-term structural issues such as the demographic aging” are something to be addressed in portfolios sooner rather than later, advises Klein.
Still, there are opportunities in 2026. Throughout Asia Pacific outside China, the strong property sectors are data centers, logistics, hotels and housing, according to the ULI and PwC Emerging Trends in Real Estate Asia Pacific 2026 report. The best five cities in Asia Pacific for property in 2026 are Tokyo (ranked first for the third consecutive year), Singapore, Sydney, Osaka and Seoul, adds the report.
Global capital needs a home, whether in turbulent times or not. Asia Pacific property is as good a bet as any in 2026.
The U.S. slog
U.S. real estate is slogging into 2026, with the MSCI U.S. REIT index finishing 2025 largely unchanged from 2024, and still down nearly 16 percent from zeniths set in late 2021.
The U.S. office markets feature vacancy rates in the mid-teens as the year starts, with some major central business districts even higher. Industry veterans say selectivity is the key to navigating 2026: Stay in solid core properties, and watch your position in the capital stack, whether as a borrower or lender. And, of course, diversify.
“In our view, it is better to focus on core, income-generating asset classes with strong fundamentals, such as multifamily, logistics and necessity retail, to provide portfolio stability,” says Klein. “Real estate debt strategies also offer protection in volatile environments by providing predictable cash flows and a more secure position in the capital stack.”
In addition to caution, schedule stress tests in 2026 on property portfolios, say some.
“Focus on the real estate fundamentals and consistently stress-test your portfolio with a series of scenario analyses, adopting a healthy paranoia approach, [and] you should not go far wrong,” counsels Jiwa. “Develop a business plan that is underpinned by downside protection and multiple streams of upside creation, and develop a resilient and adaptable portfolio.”
According to ULI and PwC, the most promising segments in the U.S. property scene for the 12 months ahead include data centers, logistics, senior housing, multifamily and student housing. And the top five cities for investment in 2026 may surprise some: Dallas–Fort Worth; Jersey City, N.J.; Miami; Brooklyn, N.Y.; and Houston.
A good vintage?
Despite what could be called an ongoing global case of “commercial property blahs,” some dealmakers contend the time to buy is when markets are uncertain.
“We are certainly seeing more pricing dislocation in the market and anticipate that 2026 will be a strong vintage for differentiated special situations players that have the conviction, discipline, multi-cycle experience and deal execution track record,” says Jiwa.
Few will contest that the 2020s have tested the mettle of many a citizen and property investor, starting with the COVID-19 crisis, continuing with wars in the Middle East and eastern Europe, along with rising geopolitical tensions in Asia Pacific, and all of it topped by a Washington, D.C., seemingly willing to refashion any policy, trade agreement or diplomatic alliance at will.
Through it all, governments of the West have borrowed heavily, but as global capitals face rising military challenges and ageing populations, they appear to have little recourse except to borrow even more. Nevertheless, gloomy periods are recurrent in history, and after each lull, property reasserts itself as peerless investment that throws off income and appreciates, and can be repositioned as times and needs change.
In the postwar period, long-term bets against property investing have largely flopped. The second half of the 2020s will likely follow suit.