European commercial real estate remains mired in what analysts call “zombieland,” with transaction volumes, valuations, and lending activity all struggling to recover from the sharp repricing triggered by higher interest rates and tighter financial conditions. Despite early hopes that 2025 would mark a turning point, the sector continues to face weak buyer appetite, stubbornly high financing costs, and lingering uncertainty over office demand and retail performance.
Data for 2025 show investment volumes at less than half their 2021–2022 peaks, with institutional investors and banks still cautious about underwriting deals in office, retail, and secondary logistics. Core European markets such as Germany, France, and the Netherlands have seen particularly subdued activity as owners resist selling at significantly lower prices, creating a stalemate between buyers and sellers. This bid–ask gap has given rise to so‑called “zombie assets”: buildings that continue to operate but are overleveraged, overvalued on bank balance sheets, and difficult to refinance.
The office sector remains at the center of the storm. Remote and hybrid work have permanently reduced demand for older, less sustainable stock. Tenants are consolidating into prime, energy-efficient spaces, pushing vacancy rates higher in secondary buildings and smaller cities. Lenders, mindful of regulatory scrutiny, are demanding higher equity and more conservative rental assumptions before approving loans, which further suppresses deal flow. Retail assets, especially secondary shopping centers, still struggle with e‑commerce competition and changing consumer behavior, creating additional headwinds.
Yet the picture is not uniformly bleak. Prime logistics assets in key corridors and high-quality, green-certified offices in the best locations continue to attract capital, albeit at lower valuations than at the peak. Some private equity firms and opportunistic investors are circling distressed portfolios, anticipating that forced sales in 2026–2027 could unlock attractive returns. However, the pace of repricing has been slower than in previous cycles, largely because banks have favored “extend and pretend” strategies, rolling over loans rather than crystallizing losses.
Political uncertainty and regulatory changes add another layer of complexity. Upcoming elections and debates over sustainability rules have made cross‑border investors wary, particularly in countries where rent regulation or taxation could shift. At the same time, looming green renovation requirements mean that landlords face significant capital expenditure to bring aging stock up to new environmental standards. Without fresh capital and clearer price discovery, Europe’s commercial real estate market is likely to remain trapped in this zombieland phase into 2026, with only select prime segments bucking the trend.
