The real estate asset manager’s base case projection between now and 2029 is for prime real estate across all European markets to yield 8.1% per annum.

Though this is down from 9.2% in September 2024, the positive outlook is driven by solid current income and rental growth.

The UK has the strongest outlook, with prime returns expected of up to 9.8% per annum, followed closely by Benelux and central European markets.

Recent announcements of further tariffs have made AEW’s downside scenario more relevant according to the firm, but even this sees prime returns estimated at 7% per annum until 2029.

Driving AEW’s optimistic outlook is rental growth of 2% per annum between now and 2029 across prime real estate assets, only a modest downgrade from September 2024’s 2.1%.

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Residential assets are the healthiest, with above average 3.1% prime rental growth over the period.

This is due to a downward revision of the supply of new residential units. Against this backdrop, investment volumes have begun to pick up.

“We expect any impact on returns from tariffs to be mitigated by solid current income and rental growth prospects,” said Hans Vrensen, head of research and strategy (Europe) at AEW.

“In the context of wider financial market volatility, prime European real estate investment should prove to be a safe haven relative to other asset types such as stocks and bonds.

“Despite the uncertainty on tariffs, we expect that the European real estate recovery will remain on track and investor sentiment and liquidity will continue to improve after the significant 2022-24 re-pricing.”