Uneven residential market recovery in Europe

Patrizia's latest report, "European Residential Markets," indicates that European residential capital values are on the rise again after a downturn, though this recovery isn't uniform across all cities.

Patrizia residential

While the market has started to recover, the bounce-back isn't consistent everywhere. The average growth in prime capital values for the top 25 cities shifted from an 11% increase in 2022 to a 14% decrease in 2023. However, by the second quarter of 2025, all these markets were showing positive growth again. Despite this, the gap between the best and worst performers grew even larger: the top 25% of cities saw a robust 13% year-on-year growth, while the bottom 25% only achieved 3%, indicating a much wider disparity than before 2022.
Patrizia's City Ranking, which evaluates 142 cities based on 28 factors (not just city size or GDP), shows that market fundamentals, location quality, innovation, and connectivity are what truly attract investment.
Contrary to popular belief, city size isn't a reliable indicator of investment liquidity. In fact, the top 10 cities represent just 24% of Europe’s urban population but have captured nearly 45% of all residential transactions since 2019.
Properties with high energy efficiency ratings (EPC A/A+) command price premiums, while inefficient ones face discounts. For example, in Germany’s Top-7 cities, properties with EPC A/A+ ratings command price premiums of around 5–6% versus EPC D, while inefficient stock (EPC F–H) trades at clear discounts of around -2%.
Affordability, measured by the Net Rental Stress Ratio, also significantly impacts investment performance, showing considerable variations even within cities. For example, Evere in Brussels faces acute rental stress, while Watermael-Boitsfort remains comparatively resilient.
While capital values are recovering, cross-border investment is still highly concentrated. US investors are leading, accounting for 51% of cross-border investment in the year to Q2 2025. The UK is the primary recipient of this capital, attracting 43% of inbound flows, with Germany a distant second.
The report emphasizes that investors need a more sophisticated approach. The focus should now be on stable income, as the new benchmark for performance and investor diversification both within and across cities.
Additionally, growth in areas like single-family rentals and student housing is crucial. Core student housing markets like Madrid, Milan, Copenhagen, and Berlin remain strong, while smaller university cities like Turin, Poznań, and Valencia offer attractive but more selective opportunities.
Marcus Cieleback, chief urban economist at Patrizia, commented: “The encouraging sign is that all markets have now climbed above their troughs and returned to positive territory, confirming that the recovery is broad-based. This widening divergence signals a fundamental shift. As the report makes clear, residential investment performance is no longer mainly driven by broad capital market movements. Instead, city fundamentals, local nuance,s and asset characteristics are again becoming the decisive factors to achieve strong returns. City fundamentals are now the most powerful predictors of residential investment attractiveness.”
Georg Kläger, senior strategist at Patrizia, said: “The Patrizia Net Rental Stress Ratio is a simplified affordability metric that adjusts traditional rent-to-income calculations by incorporating net rent and purchasing power per household, including social benefits. It highlights where rent burdens are most acute and where households are more resilient, offering investors both a sharper view of affordability and valuable guidance for targeted housing strategies.”
Marcelo Cajias, head of Investment Strategy and Data Intelligence at Patrizia, commented: “We are entering a more granular and diverse investment environment. To succeed, investors must focus on stable income streams, diversify across city districts as well as geographies, and embrace new living segments that are reaching institutional scale. These are the building blocks of long-term outperformance.”