Stronger for longer: The region’s recent outperformance is increasingly underpinned by structural factors
key takeaways
- Southern Europe has led Europe’s rebound in real estate investment activity.
- A mix of cyclical tailwinds, a broader sector mix and rising cross-border interest is driving a longer-term re-rating of the region.
- Outperformance should persist, but growth is expected to moderate and become more uneven as the broader European cycle normalises.
Southern Europe investment: From rebound to firm footing
Why Southern Europe has led the recovery, and what comes next
Europe’s downturn; Southern Europe’s resilience
Following the post-pandemic rebound, rising interest rates and weaker confidence triggered a sharp correction in European real estate investment. 2023 marked the low point of the decade, with just €151 billion transacted across Europe (-51% year-on-year). The contraction was broad-based across countries and sectors, with only a handful of markets showing notable resilience.
Southern Europe stood out for its relative resilience. While most European markets saw a pronounced pullback, investment volumes across Spain, Italy, Portugal and Greece fell by only 11% in 2023. Greece was the notable positive outlier, recording annual growth of 93%, while Italy and Spain ranked among the most resilient large markets alongside Austria and the Czech Republic. Portugal’s decline was closer to the European average, but still comparatively contained at the regional level.
The rebound has been equally distinctive. Southern Europe has recovered faster than any other European subregion: investment volumes are now around 70% above their 2023 level, versus 68% in the Nordics, 64% in Central & Eastern Europe, and only 30% in core markets such as the UK, Germany and France. As shown in Fig 1, the recovery in Southern Europe has been around two-thirds faster than the European average. In 2025, the region reached €35 billion in transactions, an all-time high and 24% above 2024 levels, while the broader European market grew by only 12% year-on-year.
2025 country snapshots
Greece was Europe’s growth champion, with transacted volume up 58% year-on-year. Hotels remained the primary engine (c. €1.26 billion, +34%), supported by several sizeable single-asset and portfolio transactions, including the sale of the remaining 67% stake in the Four Seasons Astir Palace in Vari. Office investment also strengthened to c. €822 million (+81%), underpinned by the acquisition of a three-asset office portfolio by Yoda PLC from Prodea Investments for approximately €750 million. Retail activity accelerated from a low base, more than tripling year-on-year on the back of a handful of landmark deals.
Italy followed with volumes up 17% year-on-year. Growth was relatively broad-based, with most sectors expanding except offices (+11%) and hotels (+8%). For the second consecutive year, retail accounted for the largest share of transactions (+55% annually). The sharpest uplift came from senior living and care homes (+500% from a low base), supported by the sale of the Icad 23 senior housing portfolio to BNP Paribas REIM for €280 million, while student housing rose 64% year-on-year on the back of several significant transactions.
Spain recorded a 26% year-on-year increase, supported by sustained momentum in hotels (volumes +28%), which again accounted for the largest share of total investment. Activity also benefited from a deeper transaction pool, including several landmark deals. Care homes and PBSA were standout growth areas: care home volumes rose fourfold, supported by the sale of a majority stake in Vitalia to StepStone Real Estate (in a joint venture with Greykite) for approximately €1.5 billion, while PBSA volumes increased by 131%, supported by CPP Investment Board’s acquisition of a 22-asset student housing portfolio from Brookfield for around €960 million. Office volumes also increased by 39%.
Portugal posted 16% year-on-year growth, with a broad-based recovery across most sectors. Retail remained the largest contributor, although volumes eased from elevated 2024 levels. Student housing increased by 172%, driven by the sale of the Livensa portfolio by Brookfield Asset Management to CPP Investments for approximately €340 million. Industrial and logistics volumes rose 114%, supported by numerous transactions, while offices rebounded sharply (+92%) and hotels remained resilient.
What is driving the Mediterranean momentum?
Our analysis suggests this performance is not explained by a single variable. Instead, Southern Europe has benefited from a rare alignment of cyclical tailwinds, a broadened investable sector mix and a clear shift in cross-border allocation behaviour.
Cyclical tailwinds
Over the past two years, Southern Europe has consistently outperformed the EU27, averaging around 1.8% real GDP growth, compared with 1.3% across the EU27, according to Oxford Economics. Part of this reflects catch-up dynamics after a deeper pandemic shock, particularly via tourism and services, followed by a stronger reopening cycle. Momentum has been reinforced by NextGenerationEU funding, which has supported public investment, infrastructure delivery and digitalisation. Labour markets have also remained resilient, helping to sustain household consumption despite inflationary pressures, while the region’s lower reliance on manufacturing has reduced exposure to the industrial slowdown that weighed on parts of core Europe.
Energy security has also re-emerged as a differentiator. Higher renewable penetration helps dampen exposure to imported fossil fuels and gas-driven price volatility: in Spain, renewables produced 55.5% of total electricity generation in 2025, according to Red Eléctrica, while in Portugal, renewables met 68% of national electricity demand in 2025 (according to REN). In a more volatile geopolitical environment, this provides an additional buffer for operating costs and competitiveness over the medium term.
Southern Europe’s outperformance also reflects its improved relative positioning within a weaker European landscape. As growth momentum softened in core markets such as the UK, France and Germany, investor appetite in these geographies moderated, encouraging a rotation towards higher-growth markets in the South.
At the same time, strategy has shifted towards diversification, both geographically and by sector. Southern Europe has benefited from a growing, more liquid universe of alternatives (care homes, senior housing, and student accommodation), alongside strong hospitality fundamentals underpinned by sustained tourism demand. More attractive yields than in several core markets have also helped maintain investor engagement, while the region has seen a marked rise in cross-border capital participation (see Fig 2), reinforcing its role within European allocation strategies.
Structural drivers
Taking a longer-term view, Southern Europe’s momentum is not limited to the last two years. Over the past decade, Spain and Italy have each increased their share of total European investment by around three percentage points, while Greece has also gained ground more modestly. This points to a gradual, sustained shift in investor allocation rather than a purely cyclical rebound.
This is consistent with the positioning of several Southern European markets in the upper-right quadrant of Fig 3, which captures both near-term recovery and longer-term expansion. Spain, Italy and Greece show positive momentum across both time horizons, indicating that current performance is increasingly supported by improvements in market depth, liquidity and investor participation. Portugal follows a similar trajectory at a more moderate pace, reinforcing the broader rebalancing of European capital towards the region.
Sector fundamentals
At the sector level, Southern Europe’s relative advantage is clearest where demand is structurally supported, and new supply remains disciplined, improving visibility into occupancy, rental performance, and income durability.
In offices, more office-centric working patterns remain a relative support. Remote working is less entrenched than in many core markets, and tertiary employment growth has been comparatively resilient, helping to limit the risk of a sustained rise in structural vacancy. This dynamic is illustrated in Fig 4, which compares remote-work penetration (2024) with average annual growth in tertiary employment (2020–2025): Southern European countries cluster at lower levels of remote work alongside solid services-sector job growth. In a context where new office development is constrained across Europe, these factors improve income visibility for prime assets.
In retail, comparatively lower online penetration continues to favour physical formats, sustaining footfall across prime high streets, dominant centres and retail parks. This partly reflects cultural preferences for in-person shopping, supported by favourable weather and later opening hours that extend the role of retail as a social experience. In 2025, the share of online sales varied between 8.6% in Portugal, 9.5% in Greece, 11.9% in Italy and 12.2% in Spain, versus an average of approximately 15% across Europe (according to GlobalData). The region’s concentration of gateway cities and resort destinations further supports trading density: in Spain, total expenditure by non-resident tourists reached €134.7 billion last year (+6.8% versus 2024, according to INE), in Italy, foreign traveller expenditure was €56.8 billion (+4.8% year-on-year), according to Bank of Italy, while Portugal’s tourism receipts reached €29.1 billion in the 12 months to 2025 (+5.0% versus 2024, according to Turismo de Portugal citing Banco de Portugal). Together with a comparatively favourable occupancy cost base, these conditions support prime pitches and value and grocery-anchored formats that are well aligned with local shopping habits.
In logistics, recurring agrifood flows provide a stable demand base and contribute to non-discretionary freight volumes, reinforced by proximity to major Mediterranean ports. Spain’s agrifood and fisheries exports reached €75.1 billion in 2024 (c. 19.5% of total Spanish exports, according to Spain’s Ministry of Agriculture, Fisheries and Food), while Italy’s agrifood exports totalled around €69.1 billion, according to Coldiretti, based on ISTAT data. Beyond these structural drivers, occupier demand is supported by supply-chain reconfiguration towards more resilient, multi-node networks, while modern Grade A warehouse stock remains comparatively scarce in several markets, concentrating demand on investment-ready assets and supporting rental tension across key hubs and corridors.
Finally, hospitality remains a structural pillar. Southern Europe pairs globally recognised destinations, a favourable climate and rich cultural heritage with improving accessibility, including expanded low-cost airline capacity and continued transport infrastructure upgrades. Spain welcomed a record 96.8 million foreign visitors in 2025, up 3.2% year-on-year from 94 million in 2024, according to the National Statistics Institute. Italy recorded 78 million international tourist arrivals last year, its strongest result in the past five years, up 1.4% year-on-year. These fundamentals have supported sustained growth in international arrivals and visitor spending over the past decade, enabling the region to gain a share of European tourism flows and underpin stronger occupancy and pricing power across key destinations. For investors, this translates into more resilient income streams and improved long-term growth visibility.
Outlook: Will the South keep outperforming?
The post-pandemic rebound impulse is fading, and European growth is normalising. As a result, investment growth rates should moderate from the exceptional pace recorded over the past two years. That said, Southern Europe is still expected to expand faster than the EU average, supporting occupier demand and investor sentiment. Oxford Economics forecasts 2026 GDP growth of 2.4% for Spain, 2.1% for Portugal and 1.8% for Greece, versus around 1.0% for the EU27, while Italy is expected to lag at 0.4%.
The key question is therefore less about cyclical rebound and more about durability. The region’s recent outperformance is increasingly underpinned by structural factors: a deepening investable universe (including alternatives), sustained tourism-led demand, lower e-commerce exposure in retail, and office and logistics dynamics that look more favourable than in several core markets. Southern Europe has gained market share and sits more firmly on cross-border investors’ radar; in an environment where diversification remains a priority, allocations beyond the traditional “big three” should remain supportive.
Energy is an additional differentiator in a more volatile geopolitical backdrop. Higher domestic renewable penetration should help dampen exposure to imported energy shocks and improve operating-cost visibility for occupiers, supporting, at the margin, leasing decisions and business confidence in energy-sensitive sectors.
The first signals from Q1 point to a market that remains on solid footing. Spain has seen a particularly strong start, with volumes reaching approximately €6.1 billion, up 56% year-on-year, underpinned by continued momentum in living sectors and offices. Portugal has also recorded robust activity, with around €911 million invested, marking a 39% annual increase, driven largely by international capital, which accounted for over half of total volumes, and by retail and hospitality, which attracted close to 70% of investment. In Italy, investment volumes have edged up to around €2.7 billion, slightly ahead of the same period last year. Looking ahead, we expect the region to maintain positive momentum, supported by improving liquidity, sustained investor appetite for tourism-related and alternative asset classes, even as growth rates cool from recent highs.
The balance of risks is two-sided: a weaker European economy or a renewed rise in financing costs would temper activity, but additional cross-border allocations and sustained strength in tourism-led sectors would provide upside. Overall, Southern Europe’s relative outperformance should persist, even as the absolute pace of growth normalises.