Repricing real estate risk in an uncertain world

Using our existing GlobalRiskNavigator (GRN) framework [1] – which scores country risk across carefully selected factors – we present an update to our previous paper with new risk-adjusted return rankings. Broadly speaking, there has been a notable increase in risk profiles since 2023, driven by social unrest, policy changes, and resistance to climate-change readiness. Environmental, social and governance (ESG) scores have deteriorated globally, but particularly so in the US, across continental Europe and in Hong Kong. Fewer markets are making it into the good/moderate value boxes, and more uncertainty surrounds traditionally safer markets.

GlobalRiskNavigator score

Risk-adjusted return snapshot

The chart below shows the current make-up of risk across markets. While there are a few markets that have seen their respective risk decrease over the past two years (namely India, Czech Republic, New Zealand, and Sweden), the majority (24/29) have seen an increase in risk. Globally, risk has increased from 4.2 to 5.5. A confluence of economic risk, social unrest, governance challenges, and climate vulnerability has pushed traditionally stable markets – such as Japan, France, and the United Kingdom – up the risk spectrum. However, return forecasts have not necessarily adjusted in tandem, creating a potential mismatch between risk and reward.

The RE: GlobalRiskNavigator Country Index

The table below shows updated GRN risk scores (as at the first quarter of 2025) and Aberdeen Investments’ three-year annual total return forecasts for five highlighted countries, along with their calculated return per unit of risk:

	Total returns (three-year annualised)	Returns per unit of risk
Germany	9.43%	3.33%
France	10.10%	2.75%
United Kingdom	8.54%	2.37%
Japan	5.38%	1.31%
United States	6.85%	1.24%
India	8.67%	1.19%

Return per risk = three-year return ÷ risk score.

These figures highlight a sustained advantage for European markets – specifically Germany, France, and the UK – in risk-adjusted terms, with each delivering over 2% return per unit of risk.

The US and India offer only 1.2%, reflecting their higher risk relative to returns. Largely keeping with tradition, Japan’s traditionally lower-risk profile has contributed to its low returns of 1.3%. That said, this historic ‘safer’ advantage has narrowed lately.

[Case study 1] United States: moderate returns against heightened risk

Risk score – 5.54. Demonstrably shaken by a deterioration in governance and steep rollbacks of environmental protection, the risk score for the US has increased since 2023 and is higher than the average for developed European countries. Changes include, but are not limited to, the withdrawal from the Paris Agreement (again), deregulation of the Environmental Protection Agency (again), and concerns around the lasting neutrality of the Federal Reserve.

Returns outlook – 6.85% per annum (pa). The three-year forecast return for the US is a moderate figure, as higher interest rates have moderated price growth expectations. With a risk score of 5.54, the US yields 1.24% per risk unit. This is markedly lower than most European markets and slightly above emerging markets like India. In other words, US real estate is barely compensating for risk. The days when the US was seen as nearly risk-free are gone; investors now demand a spread for US-specific uncertainties. In fact, we see certain disinvestment trends from the US, as cross-border capital is searching for more stable footing [2].

[Case study 2] France: low risk with caveats

Risk score – 3.67. France’s risk score jumped significantly from 2.5 to 3.67 in the latest update – a notable increase for a developed European market. Social unrest, economic pressures, and political turmoil have all contributed to the deterioration. Despite this rise, France still ranks as low risk, overall (only a few countries, like Sweden and Germany, score lower).

France also scores well on climate policy and remains on track with its decarbonisation efforts, by keeping environmental transition risks low.

Returns outlook – 10.10% pa France’s three-year total return forecast is a healthy 10.1% annually, bolstered by a post-correction rebound in property values and steady rental growth (especially in the residential and industrial sectors). With a risk score of 3.67, France delivers about 2.75% return per risk unit, one of the highest ratios among all countries. This indicates that French real estate is compensating investors well for the level of risk. In our global ranking, France sits in the top three by risk-adjusted return, reaffirming its status as a relatively efficient market.

[Case study 3] United Kingdom: policy paralysis

Risk score – 3.60. The UK’s risk score has increased from 2.8 to 3.6. While the UK remains a highly transparent and liquid market, deteriorating social and governance scores have outweighed the positive scores seen over the past two years. Unrealistic fiscal rules, sticky inflation and low productivity growth, labour strikes, and dizzying policy U-turns all contribute to these heightened metrics. In the face of this uncertainty, 30-year bond yields rose to their highest point since the 1990s by mid-2025 [3].

Returns outlook – 8.54% pa. The UK’s expected return is 8.5% per year, which is a solid mid-range figure. It reflects decent rental yields and some heightened recovery potential as interest rates are expected to decline. With its risk score at 3.6, the UK offers roughly 2.08% return per risk point. This is very good – not quite as high as France or Germany, but still places the UK among the better risk-adjusted markets. Indeed, the UK remains at the top of cross-border investor preferences, given its deep liquidity and market size [4].

Final thoughts…

Across our GlobalRiskNavigator, there has been a significant shift in the balance of risk and return. There are plenty of current headwinds to navigate and almost certainly a raft of future headwinds not yet revealed. This is why having a risk framework in place is so important for diversified strategies. Each strategy must remain fluid, though, and the presence of heightened risk should not necessarily rule any market out, so long as the makeup of this risk is understood.

As we progress through 2025, we will keep a watchful eye on deteriorating ESG scores, climate policy shifts, conflicts in the Middle East, inflation shocks, and sovereign debt levels. We have seen an increase in global risk, but that doesn’t mean sweet spots have disappeared entirely. With careful analysis and a robust framework, we can identify these areas and all be a little better prepared for the future.