Key Takeaways
- • Tariff inflation concerns have moderated, easing market fears, though material rate cuts remain unlikely despite softening economic conditions—a key shift in macro expectations since April 2025.
- • Private real estate sentiment declined notably in Q2 2025, with the INREV European sentiment indicator showing steep drops in investment and liquidity sub-indicators, though leasing prospects remained supported.
- • Deal activity and pricing showed modest recovery in Q2 2025 across both US and European markets, with real estate valuations reflecting broader public market repricing from prior quarters, though sector divergence persists.
- • Rental income remains well-supported by tight supply conditions, with future development pipelines constrained by elevated construction costs and macroeconomic uncertainty—a structural tailwind for income-focused strategies.
- • Private real estate equity fundraising recovered to 85% of 2024 full-year levels through mid-2025, signaling renewed capital formation momentum in the sector after prior-year weakness.
Summary
Schroders Capital's Q3 2025 Global Real Estate Lens provides a comprehensive quarterly assessment of property market conditions, revealing a market in transition as tariff-driven inflation concerns ease but broader macro headwinds persist. The report captures a sector navigating fluid policy conditions and volatile capital markets, with early signs of stabilization appearing in transaction metrics and sentiment measures through the second quarter of 2025.
The most significant macro shift concerns inflation expectations. Initial fears that tariff announcements since early April would reignite inflationary pressures have substantially moderated, reducing near-term uncertainty for real estate investors. However, the report indicates that material additional interest rate reductions should not be expected despite the softening economic outlook—a nuanced positioning that suggests central banks are likely to maintain relatively restrictive policy stances. This calibration is critical for real estate investors, as it implies sustained pressure on cap rates and debt financing costs even as growth concerns mount.
Sentiment indicators reveal a more cautious market environment. The INREV sentiment index for European real estate prospects declined notably in Q2 2025, with investment and liquidity sub-indicators falling steeply. This pullback reflects investor hesitation regarding deal availability and exit prospects, though views on future leasing prospects remained constructive—indicating confidence in income generation despite transaction uncertainty. The divergence between sentiment and fundamentals underscores the gap between macro concerns and operational resilience in the sector.
On pricing and transaction activity, the report documents modest but meaningful improvements. Both US and European real estate pricing continued its recovery trajectory in Q2 2025, supported by public market repricing that cascaded into private valuations. Deal activity increased slightly but remained subdued by historical standards, suggesting that while sentiment is improving, capital deployment remains measured. Private real estate valuations are expanding on a broader basis, reflecting the public market rerating from prior quarters, though sector divergences persist—particularly between core and value-add assets.
Supply fundamentals remain a core strength. Rental income levels are well-supported by tight occupancy conditions, with future development pipelines constrained by elevated construction costs and macroeconomic uncertainties. This structural tightness is a significant tailwind for income-focused strategies and limits downside rental pressure. Critically, private real estate equity fundraising is recovering and has already reached 85% of full-year 2024 levels through mid-2025, signaling renewed confidence among limited partners and improved deployment conditions heading into the second half of the year.
The most significant macro shift concerns inflation expectations. Initial fears that tariff announcements since early April would reignite inflationary pressures have substantially moderated, reducing near-term uncertainty for real estate investors. However, the report indicates that material additional interest rate reductions should not be expected despite the softening economic outlook—a nuanced positioning that suggests central banks are likely to maintain relatively restrictive policy stances. This calibration is critical for real estate investors, as it implies sustained pressure on cap rates and debt financing costs even as growth concerns mount.
Sentiment indicators reveal a more cautious market environment. The INREV sentiment index for European real estate prospects declined notably in Q2 2025, with investment and liquidity sub-indicators falling steeply. This pullback reflects investor hesitation regarding deal availability and exit prospects, though views on future leasing prospects remained constructive—indicating confidence in income generation despite transaction uncertainty. The divergence between sentiment and fundamentals underscores the gap between macro concerns and operational resilience in the sector.
On pricing and transaction activity, the report documents modest but meaningful improvements. Both US and European real estate pricing continued its recovery trajectory in Q2 2025, supported by public market repricing that cascaded into private valuations. Deal activity increased slightly but remained subdued by historical standards, suggesting that while sentiment is improving, capital deployment remains measured. Private real estate valuations are expanding on a broader basis, reflecting the public market rerating from prior quarters, though sector divergences persist—particularly between core and value-add assets.
Supply fundamentals remain a core strength. Rental income levels are well-supported by tight occupancy conditions, with future development pipelines constrained by elevated construction costs and macroeconomic uncertainties. This structural tightness is a significant tailwind for income-focused strategies and limits downside rental pressure. Critically, private real estate equity fundraising is recovering and has already reached 85% of full-year 2024 levels through mid-2025, signaling renewed confidence among limited partners and improved deployment conditions heading into the second half of the year.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.