Why real estate returns are becoming operational, not financial

For years, a large part of real estate’s appeal followed a fairly simple logic: buy well, finance cheaply, and let the market do the rest. Low interest rates and yield compression meant that a significant share of returns came from financial structure rather than from how the asset was actually run.

That cycle has changed. Today, the European real estate market is entering a new phase where returns depend less on financial engineering and more on the ability to operate assets effectively. This shift has deep implications for investors, entrepreneurs and operators alike.

Real estate is no longer a passive game.

From yield to real income

To understand this change, it helps to clarify a key concept. For a long time, “yield” was treated as the main driver of value. Put simply, yield measures the income an asset generates relative to its price. When interest rates fall, investors accept lower yields, pushing prices up. This is what’s known as yield compression.

The issue is that this mechanism no longer works in the same way.

With higher interest rates and more selective financing, yield compression has clear limits. The market no longer creates value automatically over time. In this environment, returns increasingly come from a different source: operational income.

Today, value is created by lifting NOI, not by waiting for the market to do the work.

(NOI, or Net Operating Income, is what remains after operating costs are deducted from revenues. It’s the clearest indicator of whether an asset truly performs.)

What it really means to operate an asset well

Talking about operations is not theoretical. It’s about very concrete, often unglamorous decisions.

Operating an asset well means, for example: improving real occupancy, not just headline figures, adjusting pricing with intention, not inertia, optimising costs without damaging the experience or investing in improvements that increase future income, not just aesthetics

This is particularly relevant in experience-driven assets such as workspaces, hospitality, living or hybrid retail. On paper, two similar assets can produce radically different results depending on how they are managed.

The difference is no longer in the asset itself, but in the system that supports it.

Why does this shift filter out weaker projects?

This new real estate cycle acts as a natural filter. Projects that relied heavily on cheap financing or automatic revaluations are now showing their fragility. Meanwhile, assets with a clear proposition and strong operations are proving far more resilient.

This is why investors are paying less attention to storytelling and more to execution. Location and concept still matter, but they are no longer enough. What matters is whether an asset can generate consistent income across different market conditions.

Operations have become a competitive advantage.

A more demanding, but healthier market

This shift is not necessarily negative. In many ways, it signals a more mature market. One that rewards long-term thinking, professional structures and decisions that genuinely impact the bottom line.

For those who view real estate as an operating business rather than a purely financial product, this environment creates opportunity. Less noise. More focus. Fewer promises, more management.

Real estate is starting to look like a real business again.

Looking ahead

In the years ahead, this logic is likely to consolidate further. Groups and operators who know how to manage, optimise and adapt will be better positioned than those still waiting for market dynamics to do the heavy lifting.

This is the framework through which real estate is now understood: less dependence on external tailwinds and more responsibility for internal performance, a demanding shift, but one that has the potential to reshape the industry for the better.

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