Real Estate Puts On Brave Face As Iran Conflict Rattles Recovery

Conflict in Iran cast an uneasy shadow over Cannes this year as the annual behemoth real estate conference MIPIM returned to town, with Europe’s real estate industry keen to emphasise the safety and stability of its markets during a time of geopolitical uncertainty.

An event that was supposed to reflect a more confident Q1 instead saw a more sober appraisal of global risk and a sense that investment may stay closer to home as capital seeks safe ports in a storm.

"It presents a sea of challenges," said McKinsey & Co. partner Ben Dimson, speaking on a panel at the event. 

The overriding view from a conference attended by more than 20,000 people from 90 countries seemed to be it is too soon to evaluate the impact of the Middle Eastern crisis on liquidity, but a protracted war could put the brakes on investment.

Europe looks set to gain if capital reevaluates risk, but the spike in oil prices has put interest rate cuts on hold, raising the possibility of increases, unthinkable just a few weeks ago. That, in turn, could shut off the capital tap.

For the moment, the industry is trying to remain positive in the hope that an end to the conflict will see a return to the industry's upward trajectory before the attacks on Iran.

What seems certain is that a strong uptick in returns has been deferred. While the costs of building and owning real estate have increased, rents and asset values have not been uniformly pulled in their wake — the fabled inflation hedge that real estate likes to trumpet. 

“If anything, what's happened over the past week and a half will likely increase that replacement cost situation," said Mark Lee, head of real estate for Australian Retirement Trust, a superannuation fund with £196B in assets under management.

“Therefore, for supply responses to kick in one day, values and rents will really have to catch up,” Lee said. “The question in the next 10 years is when will that happen? And will our CIOs have enough patience to wait to when that happens?”

Transaction activity would increase, particularly if interest rates stay flat or trend downwards as liquidity improves and banks increase their financing, according to Christoph Ignaczak, investment director and senior partner, Germany, at Patron Capital. He said the revival of transaction activity across Europe’s real estate markets will be a major theme of the year.

“Deal flow is increasing and the macro backdrop is propelling many parts of the real estate market,” he added. 

In that sense, much hinges on how the Iran conflict impacts inflation and how central banks respond in turn. A poll of economists by Reuters said the Bank of England would cut rates by 25 basis points to 3.5% in April, but there is little consensus on the outlook beyond this. Financial markets are pricing in European Central Bank rates staying flat at 2%.

Aareal Bank Management board member Christof Winkelmann said 2026 had already shown promise for a full recovery and stronger sales volumes than last year, with particular strength in key sectors such as hospitality.

“The market is better than last year," he said.

"There’s been an increased sales activity, and I think we will see increases across all asset classes. There are increasing signs of recovery in real estate despite a return to form being slower, longer and bumpier than many expected."

Winkelmann said that after a year when many investors chose to maintain their existing portfolios, there were signs of more deals and more movement driven by the possibility of better pricing for assets.

Likewise, Patrizia Head of Fund Management Real Estate Mahdi Mokrane said that after a long period of waiting, his firm is now ready to look ahead to the next cycle and recovery.

“We expect 2026 to bring continued stabilisation and recovery rather than rapid expansion," he said. "In addition to European capital, global capital is increasingly turning to Europe for its attractive pricing and strong operational performance."

However, he warned that while transaction volumes should improve as valuations settle and debt markets remain supportive, discipline will remain a defining feature of dealmaking.

“In this environment, performance will be driven more by smart asset selection, sector expertise, deal structuring and local execution. This is not a broad recovery; it is differentiated and highly quality-driven,” he said.

As far as asset classes are concerned, CBRE IM Head of EMEA Urban Destinations Eric Decouvelaere said high-quality retail assets will continue to strengthen as pricing settles, liquidity returns, and investors look for resilient income with room for ESG-focused repositioning. For offices, demand for top-tier, sustainable, flexible workplaces in world-class cities will keep growing, he said.

“Retail isn’t the contrarian play it used to be, confidence is coming back, and we see opportunities in strong shopping centres, selected food-anchored retail parks and selective high streets across major European cities,” Decouvelaere said.

Some office markets have overcorrected, which will create attractive entry points, he added. Buildings capable of meaningful environmental upgrades will continue to command rental premiums. And as occupiers consolidate into the very best spaces, the destinations that help companies attract talent and build culture will outperform.

That was echoed by the British Council of Offices, which was back at MIPIM after several years absent to showcase investment and leasing opportunities in the UK market, both in London and the regional cities.

“In these turbulent times, it’s important to remember that Britain has always been seen as a safe haven for capital and has transparent rules and regulations,” BCO Chief Executive Sam McClary said. “Obviously, the living sector is attracting a lot of interest at the moment, but with offices slowly turning a corner, it’s a reminder that real estate is not just about housing and data centres.”