Diversity in Living Portfolios Unlocks Performance

European residential investing has a home bias problem. Across the continent, institutional capital is often stubbornly concentrated into domestic markets, in many cases due to familiarity rather than a truly considered view on risk and return and where opportunities lie across the continent. The sector, as an asset class, has grown rapidly: the INREV living fund universe has expanded from four funds and €5bn in gross asset value in 2001 to more than 50 funds and €60bn as of H1 2026, yet it remains deeply domestic and fragmented. Concentration is understandable. Investor familiarity with local regulation, operations and market dynamics can be a genuine advantage. But for those focused on achieving superior risk adjusted returns, there is a growing body of evidence which points to the benefits of diversifying beyond investors’ home borders.

Seeking alpha in higher growth markets

Our forecasts of prime multifamily total returns across European markets show a European average total return of 6.4% per annum. The expected dispersion, however, between the best and worst performing markets exceeds 7% annually. Which side of that range a domestic market falls on depends on factors beyond investors’ control. These include market pricing, regulation, exposure to local house price dynamics, or where a market sits in the current cycle.

For investors concentrated in a single domestic market, that kind of dispersion can represent a meaningful opportunity cost. For those able to invest across the full spectrum of European housing markets, however, it offers the potential to drive portfolio alpha by adding exposure to higher growth markets with fewer competitors and more attractive pricing relative to local bonds. Spain, Ireland and Italy, for example, all now sit at the top end of our expected forecast range. That marks a clear turnaround from the last 15 years. With the right local operators in place and sensible, risk-adjusted pricing relative to historic norms, taking a pan-European approach gives investors the flexibility to allocate where fundamentals are most supportive.

The cyclical performance trap

The long-run track record highlights the diversification case. MSCI residential performance data from 2001 to 2025 across seven major European markets shows that average historic property-level return dispersion was closer to 13% per annum. No individual country has consistently outperformed in the top quartile or avoided the bottom quartile for any meaningful period of time. Market-specific cyclicality has meant that what looks like a steady outperformer over anyone-to-three-year window frequently disappoints in the next. Performance leadership rotates.

Such is the extreme dispersion in performance that the correlation between major European residential markets averages around 0.3. Many markets show near-zero or negative correlations over the same period. Diversifying across structurally uncorrelated markets across Europe can therefore reduce portfolio volatility and smooth out returns.

A continent of evolving regulatory environments

Regulation is the key differentiator in European residential markets. Where regulation is known and consistent, it can be directly priced in and underwritten without detracting from performance. In fact, of the four most regulated markets in Europe , France, Switzerland, Sweden and the Netherlands, only one has notably underperformed the European average since 2001, and all of them have spent time as top quartile performers.

A sudden change in unforeseen regulation, however, can materially impact growth or exit assumptions. Think Barcelona in 2020 and 2024. Berlin in 2019, or Dublin in 2021. While in some cases this regulation was subsequently undone or moderated, once again it paid to be diversified. No one can predict regulatory shifts, but diversifying across countries reduces the damage when they come.

Fishing in small ponds has its limitations

At a broad European level, institutional ownership of private rentals is around 13%. This is, however, skewed by a handful of markets, namely the Netherlands, Switzerland and the Nordics, where that rate ranges from 25% up to 70%. Domestic investors here face significantly higher market saturation, and with that, increased competition for assets.

Percentages alone, though, do not capture the full picture. While these markets have some of the highest institutional ownership rates, the actual ownership of underlying private rentals ranges from just 200,000 to 900,000 units in each country, out of the approximately 6.5 million institutionally owned private units across Europe. Put another way, in any one of these domestically mature residential markets, at least 85-95% of the current investment opportunity now lies elsewhere in Europe.

The highest growth rates now come from the U.K., Spain and Ireland, where the runway for institutional capital to scale up is significant. For domestic investors in comparatively small markets, the opportunity to look across Europe is increasingly compelling.

Closing the gap

CBRE Investment Management's H1 2026 model portfolio recommends a 30%-35% allocation to residential within a diversified real estate portfolio, which is well above the approximately 20% estimated market benchmark. Closing that gap through pan-European exposure offers the most direct path to optimizing portfolio performance and reducing individual market risk. Currency hedging and efficient tax structuring need to be carefully considered alongside, but both are manageable through scaled operations. The evidence across two decades of return data, continent-wide supply/demand imbalances, and low inter-market correlation all point in the same direction. For investors willing to look beyond their home markets, diversification across European residential markets offers lower volatility, higher alpha potential and a continent-wide opportunity set that domestic concentration cannot match.