Moody’s Ratings has published a new sector deep dive on European real estate, highlighting a growing divergence between resilient operating fundamentals and rising credit risks.
The recovery in transaction markets has slowed as geopolitical uncertainty, inflation risks and higher yields weigh on investor sentiment and capital values. At the same time, operating performance remains stable, supported by limited new supply and contractual rent increases. Moody’s expects rental income to grow approximately 1 percent to 3 percent over the next 12 months.
Higher interest rates continue to erode interest coverage ratios, leaving highly leveraged companies increasingly sensitive to refinancing pressures. Financing conditions also have tightened, particularly for lower-quality office and retail assets, although bond markets remain open and liquidity remains broadly supportive for investment-grade issuers.
The report also points to a widening gap between property sect
