There are moments in markets when change arrives so gradually that, by the time it arrives, it feels inevitable. Operational real estate (OpRE) is one such example; perhaps once viewed as complex, illiquid, and opportunistic, these assets have shifted from the fringes of institutional portfolios into the mainstream. The direction of travel is clear: European allocations to OpRE have risen to 37% of total investment in 2025, up from 23% in 2017.

At its core, OpRE is about alignment. These assets derive income and value not just from bricks and mortar, but from the operator’s performance. Unlike conventional models, where rents rise irrespective of operational success, OpRE links returns to service delivery, brand strength, and customer experience. Hotels, PBSA, senior living, and lifestyle-led platforms are standout examples where an operational layer transforms assets into dynamic businesses. Equally, self-storage, cold storage and life sciences show how subtle operational layers can unlock growth within niches.

Strong fundamentals

An economic perspective is critical to understand the growth of OpRE. In recent years, elevated interest rates squeezed returns and curtailed capital appreciation, while inflationary pressures and tighter debt markets sharpened the focus on cash flow. Changes to accounting legislation made long leases less attractive, accelerating demand for shorter, service-led arrangements. In this context, OpRE structures enable active income management and align asset returns with operator performance, offering counter-cyclical flexibility and resilience at a time when passive rent collection alone is no longer enough.

What’s driving heightened interest? In part, it’s the search for hardy income returns in a world where traditional sectors are struggling to consistently deliver. But more fundamentally, it is due to how people live, work, and age in the 2020s. The globalisation of higher education continues to underpin PBSA, while an ageing population is fuelling interest in senior housing and care homes. Hospitality is evolving too, with lifestyle hotels and experience-led concepts outperforming, signalling confidence in operationally intensive assets where success depends on more than location and lease; it hinges on brand, service, and experience.

Investor playbook for 2026 and beyond

First, investment approaches are moving beyond opportunistic bets towards Core-Plus strategies, reflecting a belief that operational models can deliver stable, scalable returns. The question is no longer whether OpRE belongs in institutional portfolios, but how far it can penetrate core allocations.

Second, routes to market are diversifying. Direct investment remains dominant, but joint ventures, M&A, and the use of sale-and-leaseback as a capital structure are gaining prevalence, particularly in data centres and large portfolio plays within PBSA and multifamily. Scale is critical: these strategies demand significant CapEx to optimise and future-proof assets, making operational depth as important as financial firepower. As the line between investor and operator blurs, capabilities in branding, technology integration, and service delivery will become essential.

Third, OpRE’s footprint is widening, yet adoption varies more by asset class than geography. Mature segments such as hospitality and PBSA sit alongside emerging areas like cold storage, creating opportunities for investors who can match operational expertise with market readiness. A key enabler is the rise of third-party operating platforms, reducing historic investment barriers and allowing entry into new markets without the local expertise. The challenge is not just ‘where’ to invest, but ‘how’ to align strategy with sector-specific growth trajectories.

Beyond classification, the bigger question is whether existing core assets could benefit from an operational component. Investors may recognise that offices and retail assets could be made more resilient (and their income returns improved) with a well‑run operational management structure. In an uncertain environment, viewing assets as businesses — supported by technology, branding, and operational expertise — will increasingly define the path to value creation. Expect leases to evolve with indexed rents, capex‑sharing clauses, and green‑lease provisions, alongside pan‑European consolidation, tech‑enabled operations, and ESG compliance as baseline requirements. In the coming years, OpRE could redefine what ‘core’ means for institutional portfolios.

_{Read the articles within Spotlight: European Property Themes 2026 report below}