Investors face a critical turning point as yields stabilise but rental pressure signals a structural imbalance
Europe’s housing market is once again under strain, as new data from Catella Investment Management reveals a 2.4% surge in average rental prices across 48 of 59 European cities surveyed in Q1 2025. Despite modest price recovery in the ownership segment, stagnating construction levels are inflaming a worsening rental crisis, triggering a spike in overcrowded housing and raising serious questions about affordability and liveability.
The Catella Residential Market Overview Q1/2025 paints a stark picture: the average European rent now stands at €20.02 per m² per month. Dublin leads with €40.00 per m², followed by London (€39.30) and Geneva (€34.50). In contrast, the most affordable markets remain in Eastern and Central Europe, including Leipzig (€10.30), Liège (€11.05) and Graz (€11.10). The disparity underscores rising inequality in housing access, particularly among urban renters.
“The first quarter of 2025 was once again marked by considerable uncertainty. Nevertheless, we observed moderate growth in purchase prices and stabilised yields. Demand in the rental market remains strong, as reflected in rising rental prices and increasing overcrowding,” said Dr Lars Vandrei, Head of Research at Catella Investment Management.
While purchase prices for condominiums increased in 31 cities, the unweighted average now at €5,696 per m² (+0.9% from Q3 2024), yield stagnation has become a point of investor attention. Prime residential yields remain fixed at 4.58%. Ultra-low yields in cities like Stockholm (2.50%) and Zurich (2.70%) indicate ongoing institutional interest, while markets such as Cork (6.25%) and Krakow (6.00%) offer compelling alternatives for yield-seeking investors.
The more alarming trend is Europe’s creeping overcrowding crisis. EU-wide, 24.4% of renters now live in overcrowded homes, up from 20.4% in 2014. Countries like Germany (+4.9 percentage points), Belgium (+4.6 pp), and Sweden(+4.0 pp) are experiencing sharp increases. Among renters, Belgium (+9.0 pp), Spain (+8.0 pp), and Ireland (+7.9 pp) saw the steepest rises, pointing to deeper structural gaps. This intensifies demand pressure and puts a spotlight on under-utilised land and policy bottlenecks that could present value-add development opportunities.
Developers and institutional investors looking beyond top-tier cities may find competitive advantages in secondary markets with rising yields and below-average overcrowding rates. Cities like Leipzig and Oulu, while currently affordable, may offer mid-term capital appreciation as demographic shifts push demand further inland.
People mentioned:
Dr Lars Vandrei, Head of Research, Catella Investment Management
Companies mentioned:
Catella Investment Management, market research and investment strategy
Catella, publisher of the Residential Market Overview Q1/2025
Image credit: Catella Investment Management
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