When it comes to real estate investments, rental yield - defined as the annual return from renting out a property - is a critical metric.
Higher rental yields indicate better returns on investment, crucial for any savvy investor.
To illustrate, let's break down the numbers: purchasing a property for €500,000 and earning a monthly rent of €2,000 (or €24,000 annually) results in a gross annual rental yield of 4.8%. After accounting for taxes and other administrative expenses, the net yield will be lower.
Consider Maria, an astute investor aiming to maximise her rental income in the European property market. Her primary challenge is pinpointing the best location in which to invest.
To aid her decision, let's delve into the latest data from the Global Property Guide, updated as of Q1 2024, to uncover which European countries and cities offer the best and worst property rental yields.
Top 10 European countries by rental yield
Latvia, Ireland, and Italy top the country list with very robust average rental yields, signalling prime opportunities for investors such as Maria. Latvia, with its rental yield of 8.06%, stands out as the highest in Europe.
If current rental yields remain stable, it would take approximately 12 years of rental income to recoup an initial property investment in Latvia. In Ireland and Italy the amount of years needed would be thirteen and fourteen, respectively.
1. Latvia – 8.06%
2. Ireland – 7.85%
3. Italy – 7.38%
4. Romania – 6.63%
5. Lithuania – 6.44%
6. Turkey – 6.36%
7. United Kingdom – 6.21%
8. Spain – 6.17%
9. North Macedonia – 6.00%
10. Montenegro – 5.95%
Top 10 European cities by rental yield
When narrowing the focus to European major cities, Dublin emerges as the leader with an average rental yield of 7.33%. Within Dublin, two-bedroom units represent a lucrative investment. Maria would need to invest €365,000 to generate a monthly rent of €2,500, resulting in yields of up to 8.22%.
Istanbul and Riga are also attractive options, with average rental yields of 6.6% and 6.5%.
1. Dublin, Ireland – 7.33%
2. Istanbul, Turkey – 6.63%
3. Riga, Latvia – 6.46%
4. Bucharest, Romania – 6.36%
5. Podgorica, Montenegro – 5.7%
6. Lisbon, Portugal – 5.65%
7. London, UK – 5.59%
8. Brussels, Belgium – 5.54%
9. Warsaw, Poland – 5.51%
10. Vilnius, Lithuania – 5.47%
Worst 10 European countries by rental yield
Luxembourg, offering the lowest yield at 2.67%, is the least attractive for property rental income.
In Luxembourg, a two-bedroom apartment has an average purchase price of €1.2 million. However, with an average monthly rent of €2,800, this investment yields a gross rental return of just 2.7%.
In Luxembourg, Maria would take an average of 37 years to pay back her initial housing investment through rents, assuming constant yields. Switzerland follows closely, requiring 33 years to break even.
Real estate investors aiming for maximising returns might want to steer clear of these markets.
1. Luxembourg – 2.67%
2. Switzerland – 3.05%
3. Austria – 3.59%
4. Malta – 3.66%
5. Germany – 3.74%
6. Norway – 3.79%
7. Czech Republic – 3.95%
8. Denmark – 4.16%
9. Belgium – 4.20%
10. Finland – 4.24%
Worst 10 European cities by rental yield
Oslo ranks lowest with a mere 2.46% average rental yield. For instance, a one-bedroom apartment would cost Maria €379,731 only garners an average monthly rent of €894, resulting in a yield of just 2.83%.
Zurich ranks as the third least attractive European city for property rental income. Maria would need to invest €1.1 million to buy a two-bedroom flat in Zurich, but with an average monthly rent of €2,538, the gross annual yield is only 2.8%.
1. Oslo, Norway – 2.46%
2. Luxembourg, Luxembourg – 2.71%
3. Zurich, Switzerland – 2.79%
4. Vienna, Austria – 3.64%
5. Valletta, Malta – 3.67%
6. Helsinki, Finland – 3.8%
7. Berlin, Germany – 3.83%
8. Sofia, Bulgaria – 4.04%
9. Prague, Czech Republic – 4.05%
10. Bratislava, Slovak Republic – 4.11%
