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Understanding the market is never easy. To accurately grasp trends, it is essential to rely on trustworthy data. In this context, MSCI aims to contribute to greater transparency in the real estate sector by collecting data from various stakeholders, both locally and globally.

On June 19, MSCI shared a number of key indicators reflecting the health of the real estate market with members of LuxReal. We’re pleased to share with you here some of the key takeaways from the fourth edition of this LuxReal event, organised in collaboration with EY and MSCI, under the theme "Luxembourg positioning across European Real Estate Markets in a changing environment."

1. Real Estate Still Delivering Attractive Returns

One of the first insights shared by MSCI was the strong financial performance of real estate assets in Europe over the past ten years, with an average annual return of 6.2%—significantly higher than the 0.2% posted by the bond market. Debt funds linked to the real estate sector have performed particularly well over the last three years.

“These solid returns from real estate debt funds can be explained by the increasing difficulty for banks to meet larger financing needs,” commented Marc Geig, Deputy Director at Banque Raiffeisen. “The rise in project size and cost means local banks can no longer meet financing needs on their own. Alternative solutions, including private debt, are necessary—and we’ve seen this trend strengthen in recent years.”

2. A Market Increasingly Attentive to Climate and ESG Issues

MSCI’s indicators also reveal a growing awareness of climate-related challenges and ESG criteria across the global real estate market.

“In Europe, and particularly in Luxembourg, this has become a key focus for asset managers,” confirmed Anna Illarionova, Senior Manager at EY. “Regulatory developments—such as the SFDR, the EU Taxonomy, and local requirements regarding energy performance—are now central to investment strategies. It's crucial to assess how ESG criteria can impact asset valuations.”

Climate risks related to real estate are also increasingly considered in asset assessments, though they remain difficult to identify and quantify precisely.

3. A Renewed Sense of Optimism Across Europe

MSCI also notes a return of optimism in Europe following a particularly challenging period.

What explains this turnaround? The crisis led to price corrections that have allowed the market to regain momentum in most locations. That said, some markets, such as France, are struggling to recover—due to a combination of economic and political instability, and the continued weakness of key segments like office real estate.

4. Increasing Portfolio Diversification

Market developments show that investors are actively diversifying their real estate portfolios, with growing interest in niche segments such as healthcare, hospitality, and industrial halls—areas that offer more attractive return prospects.

“Prior to the interest rate hikes, the European Central Bank’s policy was very favourable to real estate investment, with returns far above those in the bond market. That has changed,” explained Guillaume Choumil, Senior Associate at MSCI. “Current policies have led to a reassessment of priorities in investment strategies. Assets like hotels, retail, and industrial real estate are now seen as offering better returns than residential or office, especially in comparison to bonds.”

This trend was confirmed by Nicolas Lutge, Managing Director and President of TwentyTwo Asset Management: “In terms of allocation, we’ve clearly seen a shift away from office towards living class assets and logistics. We’re also witnessing strong appetite for data centres,” he noted.

When asked about the potential for forced sales due to declining asset attractiveness, the speakers struck a reassuring tone.

“We must first and foremost show solidarity within the sector. Forced sales are never a good solution,” explained Cédric Kaison, Head of Advisory & Investment Luxembourg at BNP Paribas Real Estate. “What’s essential is to reposition certain assets—particularly by incorporating ESG considerations—to help them maintain or regain market value.”

5. Signs of Recovery in Performance

Although the real estate sector as a whole has faced a challenging period, MSCI data suggests that better days are on the horizon.

An analysis of Pan-European Property Funds Index (PEPFI) shows a return to capital growth across asset classes. Even office properties are now trending positively again across Europe.

However, in certain geographies—such as Belgium, Luxembourg, and Germany—capital growth remains in negative territory due to ongoing price adjustments. That said, net income yields are recovering, especially in Luxembourg.

“The recent drop in yields has prompted investors to reevaluate their strategies and explore new options,” said Cédric Kaison. “As returns on certain investments decline, diversification becomes a logical response—both within real estate and beyond. Within the real estate space, this has benefited segments like hospitality, logistics, and retail, where we’ve seen renewed interest in recent months.”

While office real estate may appear less attractive overall, MSCI data indicates that fundamentals remain strong in Luxembourg. Vacancy rates are still low, yields are trending upward, and capital values have improved in recent months.

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Data analysis is essential for a better understanding of the market. To increase transparency, MSCI is looking for partners who can contribute to the improvement of its analyses based on the data they can provide.