News / From the associates

In its latest report, AEW analyzes trends in the European residential market, focusing on the renewed emphasis on yields and rising rents.

Despite the gradual decline in mortgage interest rates—which fell to 3.35% in the Eurozone by the end of 2024, down 62 basis points from the previous year—access to homeownership remains limited, particularly in the United Kingdom, where 5-year fixed rates are still above 4.4% and credit conditions remain tight. This environment has bolstered rental demand, while the supply of new housing continues to fall short of governments’ stated targets: in Germany, for example, new units completed in 2025 are expected to total just 230,000, well below the target of 400,000, and in the Netherlands, new construction planned for 2024 stands at 69,000 against an annual target of 100,000. Furthermore, the supply of private rental housing is shrinking in various markets due to stricter regulations for private investors and the growing prevalence of short-term rentals.

Expected returns for the 2025–2029 period in the prime residential sector stand at an average of 7.7% annually across Europe, driven primarily by rental income (+4.0% annually) and rent growth (+3.1%), while the contribution from yield compression remains limited, albeit on the rise over the past year. The markets likely to offer the highest returns are London (10.9%), Amsterdam (8.6%), and Madrid (8.1%), thanks to a further compression of prime yields expected in the coming years. At the sectoral level, residential real estate has now reached 21% of the total volume of European real estate investments in 2024, a sharp increase from 8% in 2008. In some markets, such as the Netherlands, Germany, and Sweden, this share exceeds 30%, while in Italy it remains at 5%, although it is growing.

As for Italy, modest but still positive growth is noted: in Milan, in particular, the growth in prime rents for the 2025–2029 period is estimated at just under 2% annually, a slowdown compared to the nearly 5% average for the 2020–2024 period. Italy, along with France and the United Kingdom, has recorded one of the most significant increases in the share of residential investments as a percentage of the total, even though it started from a historically very low base. This reflects a gradual alignment with European trends, with growing interest in residential real estate even from institutional investors.

Download the report here