European Retail Real Estate Continues to Outperform Offices, Bernstein Says
Bernstein's analysis of Europe's first-half 2026 office and retail real estate earnings season found that overall results were solid, but momentum weakened at the margin.
Bernstein's analysis of Europe's first-half 2026 office and retail real estate earnings season found that overall results were solid, but momentum weakened at the margin. Only four of the nine companies it covers raised guidance, compared with seven in the same period of 2025.
The key shift was the continued outperformance of retail real estate relative to office properties. High-quality shopping-center portfolios benefited from positive rent reversion, stable occupancy rates and growth in ancillary revenue, including retail media. Their valuations continued to recover.
The office market, meanwhile, saw a sharper divide between prime and secondary assets. None of the pure-play office companies raised guidance. URW and Klépierre led in tenant sales and rent growth, while occupancy-cost ratios remained at pre-pandemic levels, indicating that stronger tenant sales were effectively absorbing rent increases.
Bernstein's analysis attributed the trend to several factors. Easing inflation has slowed index-linked rent growth, but shopping centers have pricing power, and ancillary revenue from retail media and specialty leasing has partly offset the slowdown in indexation. Renewed investor demand for high-quality shopping-center assets has also supported a recovery in valuations.
The analysts explicitly preferred the retail sector, naming URW and Mercialys as their top picks, both with Outperform ratings. Bernstein's stated positioning was positive on retail real estate, including URW, Mercialys and Klépierre, as well as on Gecina and Merlin, which also carry Outperform ratings.
Bernstein said some of the retail sector's relative strength is already reflected in the positive ratings on URW and Mercialys.
The research note identified five potential catalysts: continued acceleration in retail-media and non-rental revenue; progress on URW's Westfield Rise project, which was related to the company's decision not to raise guidance; progress on the divestment of Icade's Healthcare assets; Bernstein's second real estate conference, "Back from the Beach," on September 10, 2026; and the effect of the European Central Bank's interest-rate path on valuation recovery.
In summary, the valuation recovery and earnings resilience of European retail real estate remain in place. High-quality shopping centers are outperforming offices through ancillary-revenue growth and pricing power, and the retail-office divergence was further confirmed during the first-half 2026 earnings season.
The key shift was the continued outperformance of retail real estate relative to office properties. High-quality shopping-center portfolios benefited from positive rent reversion, stable occupancy rates and growth in ancillary revenue, including retail media. Their valuations continued to recover.
The office market, meanwhile, saw a sharper divide between prime and secondary assets. None of the pure-play office companies raised guidance. URW and Klépierre led in tenant sales and rent growth, while occupancy-cost ratios remained at pre-pandemic levels, indicating that stronger tenant sales were effectively absorbing rent increases.
Bernstein's analysis attributed the trend to several factors. Easing inflation has slowed index-linked rent growth, but shopping centers have pricing power, and ancillary revenue from retail media and specialty leasing has partly offset the slowdown in indexation. Renewed investor demand for high-quality shopping-center assets has also supported a recovery in valuations.
The analysts explicitly preferred the retail sector, naming URW and Mercialys as their top picks, both with Outperform ratings. Bernstein's stated positioning was positive on retail real estate, including URW, Mercialys and Klépierre, as well as on Gecina and Merlin, which also carry Outperform ratings.
Bernstein said some of the retail sector's relative strength is already reflected in the positive ratings on URW and Mercialys.
The research note identified five potential catalysts: continued acceleration in retail-media and non-rental revenue; progress on URW's Westfield Rise project, which was related to the company's decision not to raise guidance; progress on the divestment of Icade's Healthcare assets; Bernstein's second real estate conference, "Back from the Beach," on September 10, 2026; and the effect of the European Central Bank's interest-rate path on valuation recovery.
In summary, the valuation recovery and earnings resilience of European retail real estate remain in place. High-quality shopping centers are outperforming offices through ancillary-revenue growth and pricing power, and the retail-office divergence was further confirmed during the first-half 2026 earnings season.