Real estate
Global real estate reset: Why diversification beyond the US matters
5 min read 12 Nov 25
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2025 is proving to be a year of strategic reorientation. As investors navigate a landscape shaped by geopolitical tension, policy volatility and recalibrated capital flows, real estate is reasserting its role as a defensive allocation, while adapting to broader structural changes reshaping the global economy.
The US, long the gravitational centre of institutional capital, is facing a crisis of confidence. Erratic policy decisions – particularly around trade and immigration – have unsettled markets and dampened investor sentiment. Tariffs are disrupting global supply chains and raising inflationary risks, while inward-facing rhetoric is prompting a reassessment of long-held allocations.
This reassessment is amplified by concentration risk. Although the US accounts for roughly 37.5% of income-generating real estate globally, it represents an outsized 65.1% of assets under management in the MSCI Global Property Fund Index. Against a backdrop of policy volatility and uncertain macro conditions, this imbalance is encouraging investors to explore opportunities in regions that combine stability with long-term growth potential.
From risk to resilience: Europe and APAC step forward
Europe is responding to global dislocation with renewed cohesion. Structural reforms and pan-regional collaboration, particularly in energy, defence and digital infrastructure, could allow it to strengthen its long-term competitiveness. This, in turn, could bolster occupier fundamentals over time, enhancing the case for real estate investment.
In APAC, China’s fiscal expansion may help to stabilise regional growth, while evolving global alliances are encouraging intra-regional capital flows. With 43% of global capital raised for real estate investment in 2024 originating from APAC1, the region is well-positioned to absorb redirected investment demand, both domestic and international. Domestic investors are increasingly looking within the region, while international capital is being drawn to APAC’s robust occupational backdrop and increasingly transparent markets.
Migration patterns are also shifting. As US immigration policy tightens, international students and skilled workers are poised to turn to Europe and APAC. This trend is already influencing demand in the living sectors, particularly purpose-built student accommodation (PBSA) and multifamily housing (MFH) where structural undersupply remains acute in some locations.
Fundamentals and financing: A quiet strength
Despite macro headwinds, real estate fundamentals remain robust. Vacancy rates for prime assets are currently near historic lows, and new development pipelines are thinning. Due to limited supply, even sectors traditionally sensitive to economic cycles – like office and logistics – are showing resilience, especially outside the US.
“Due to limited supply, even sectors traditionally sensitive to economic cycles – like office and logistics – are showing resilience, especially outside the US.”
Living sectors have historically offered both cyclical stability and long-term growth. Limited housing supply and elevated borrowing costs are weighing on affordability, delaying homeownership and sustaining demand in the rental market. PBSA markets in Europe and APAC are benefitting from strong student mobility and a potential shift away from US institutions.
“Limited housing supply and elevated borrowing costs are weighing on affordability, delaying homeownership and sustaining demand in the rental market.”
Data centres stand to benefit from current structural changes. Driven by AI adoption and digitalisation, data centre demand is outpacing supply, with power availability and data sovereignty shaping future growth. Investors who can navigate this specialised sector may unlock outsized returns. Nevertheless, most investment today is focused on new developments whose returns are predicated on a large, yet-to-emerge, universe of core buyers in the medium to long term.
“Driven by AI adoption and digitalisation, data centre demand is outpacing supply, with power availability and data sovereignty shaping future growth.”
Financing conditions are also evolving in favour of real estate. Following a period of sharp monetary tightening, interest rates have been easing. In Europe, benchmark prime yields are compressing again, supported by falling debt costs and competitive activity in the transaction market. The European Central Bank has lowered its key deposit facility rate to 2%, down from 4.5% in mid-2024. This easing is reactivating leveraged buyers and supporting pricing recovery, particularly in continental Europe, as well as in markets like the UK and Australia.
Opportunity in transition
The global real estate market is not immune to the crosswinds of policy, inflation and economic uncertainty. But within this turbulence lies a rare window of opportunity. Real estate is now broadly considered fairly priced across most regions, and the combination of rebased yields, falling debt costs and resilient fundamentals is creating a compelling entry point.
“Real estate is now broadly considered fairly priced across most regions, and the combination of rebased yields, falling debt costs and resilient fundamentals is creating a compelling entry point.”
For institutional investors, the priority is to align macro conviction with asset-level selectivity. Sub-markets with acute supply-demand imbalances, assets with limited leasing risk and index-linked leases that protect against inflation are all key components of a robust strategy.
Value-add strategies are particularly attractive in this environment. Repositioning under-managed or transitional assets, especially in sectors facing ESG-driven modernisation, can unlock latent value and meet evolving occupier needs. This includes older office stock in prime locations, first-generation PBSA assets in undersupplied university towns, and logistics hubs along reshoring corridors.
“Value-add strategies are particularly attractive in this environment.”
As one cycle closes and another begins, real estate is not merely weathering uncertainty – it’s poised to thrive because of it. The sector’s ability to generate real cash flows, absorb inflationary shocks and adapt to structural shifts makes it uniquely positioned in today’s investment landscape.
For investors willing to rethink geographic exposure, embrace diversification and prioritise selectivity, global real estate offers more than defensive shelter. It offers strategic advantage. The opportunity lies not in waiting for clarity, but in recognising that the transition itself is investable.
1 INREV, ‘Capital Raising Survey 2025’, April 2025.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.
