The European rental market is in a state of flux, with rising costs and a growing demand for housing. In 2025, rents across the EU increased by 3.1%, but the picture is far from uniform. While some countries saw modest increases, others experienced double-digit growth, with Turkey standing out as a clear outlier with an astonishing 77.6% annual rent inflation. This disparity highlights the complex interplay of economic, social, and political factors shaping the rental landscape across Europe.
One key driver of rising rents is the imbalance between demand and supply. As Kate Everett-Allen, head of European residential research at Knight Frank, notes, "The key dynamic is straightforward: demand has been rising faster than supply." This is particularly true for first-time buyers, who are being pushed into the rental market due to high mortgage rates and affordability pressures in the sales market. In countries like Croatia, where rent inflation reached 17.6%, this demand-supply gap is acute, leading to significant rent increases.
However, the story is not solely about demand. Supply is also under pressure, with tax and regulatory changes reducing landlord appetite in some markets. Energy efficiency requirements and retrofit costs are adding to the burden of holding rental stock, further exacerbating the supply shortage. In Turkey, for instance, the government's rent controls have had unintended consequences, leading to sharp increases in new lets and pushing headline market rents higher.
The impact of these trends is felt across Europe, with varying degrees of severity. In Eastern Europe and the Balkans, rents rose significantly more than in other regions, while Kosovo and North Macedonia were exceptions. Montenegro and Croatia, meanwhile, are showing strong growth due to their attractiveness as short- and long-term rental destinations. This highlights the importance of local factors, such as the availability of rental properties and the regulatory environment, in shaping the rental market.
One thing that immediately stands out is the role of homeownership in shaping the rental market. In Turkey, for instance, rapid house price inflation, high mortgage rates, and limited availability of long-term fixed-rate financing have effectively locked many households out of buying, pushing more demand into renting. This trend is not unique to Turkey, and it raises a deeper question about the role of housing as an investment asset and its impact on affordability.
In my opinion, the European rental market is at a critical juncture. The demand-supply imbalance, coupled with rising costs for landlords and the unintended consequences of rent controls, are creating a perfect storm of rising rents. This trend has significant implications for both tenants and landlords, as well as for the broader economy. It also raises important questions about the role of government in regulating the rental market and ensuring affordability for all.
From my perspective, one thing that many people don't realize is the psychological impact of rising rents. For many tenants, the struggle to find affordable housing can be a source of stress and anxiety, affecting their overall well-being. This is particularly true for low-income households, who may be forced to make difficult choices between paying rent and meeting other basic needs. It is essential to consider the human cost of rising rents and to take action to mitigate the impact on vulnerable communities.
