The European residential market is expected to remain resilient, despite the potential impact of a prolonged conflict in the Middle East leading to higher inflation and interest rate rises in 2026, says AEW.
Due to robust supply and demand dynamics and stable cashflows, investors’ appetite for residential’s various subsegments remains strong, according to the manager. Since 2008, residential has doubled its share in total investment volumes to 20 percent in 2025. Based on AEW’s base case, prime residential yields are expected to remain stable over the next five years, with only a couple of markets expected to experience yield compression. European residential total returns between 2026 and 2030 are projected to be at an average of 7.4 percent per year in AEW’s base case scenario, driven mostly by current income (4 percent per year) and capital return from rental growth, with limited capital return coming from yield compression. European prime residential market rents
