Increasing divergence in economic performance across European cities means location is becoming as important as sector selection in driving real estate returns, according to research from Catella.
For much of the past decade, successful real estate investment strategies have largely been built around making the right sector calls, Catella says – particularly ‘beds and sheds’, with residential benefiting from structural housing shortages and affordability constraints, and logistics being supported by e-commerce and redefined supply chains.
Catella’s House View Autumn 2026, Cities Outlook suggests this is no longer the leading factor behind performance and groups Europen cities into six distinct clusters based on their economic strength and urban attractiveness.
Catella’s analysis covers 75 metropolitan areas across 20 European countries, representing a combined population of approximately 350 million people. Based on 16 economic, demographic, social and real estate indicators, Catella has grouped the cities into “flagship cities”, “economic anchors”, “talent hubs”, “rising stars”, “regional centres” and “trailing cities”.
“As sector trends become increasingly well understood, the key investment question is shifting from what to invest in to where to invest, making city selection a critical driver of long-term returns”, Catella’s latest report says.
Petra Blazkova, head of market strategy and product development at Catella Group, said: “I think in the last few years investors have forgotten a little bit about location because there has been [an overarching theme] of beds-and-sheds strategies. Location has always been a fundamental part of this, but the point here is that not all cities will do the same job when it comes to selecting the property type.”
She added: “European real estate can no longer be viewed as one market moving through a single cycle. Economic growth, population trends and occupier demand are increasingly concentrated in particular cities, creating very different local real estate cycles. For investors, this means that where you invest is becoming just as important as what you invest in.”
Blazkova stressed that the clusters are not a ranking, but a framework for understanding the different roles cities can play in a real estate portfolio, allowing investors to match capital allocation and risk-return requirements with local market characteristics.
There is “no single best city” to invest in, but “future returns will increasingly depend on matching the right city with the right investment strategy and risk profile”, she added. “Some cities provide liquidity and capital preservation, while others offer income generation, thematic exposure or opportunities for active value creation.”
Catella’s flagship cities include London, Paris and Stockholm. These, Catella says, combine scale, connectivity and liquidity, supporting defensive Core strategies.
Economic anchors, such as Munich, Milan and Berlin, offer relative-value opportunities within core and core-plus real estate. Talent hubs, including Bristol, Helsinki and Malmö, benefit from strong human capital and innovation, creating opportunities in areas such as student accommodation and life sciences.
Rising stars, including Warsaw, Málaga and Porto, offer stronger growth potential alongside higher risk, while regional centres, such as Lisbon, Lyon and Stuttgart, present more selective opportunities driven by local market conditions.
Catella said in its research that trailing cities, including Rome, Florence and Naples, “require a greater focus on active value creation through repositioning and redevelopment”.
“Together, the six clusters illustrate how different city characteristics translate into different investment opportunities and risk profiles, reinforcing the importance of aligning location with investment strategy,” Catella said in its research.
Catella House View Autumn 2026 builds on the investment convictions identified in the Spring 2026 House View which highlighted affordable housing and operational living as the most attractive segments in the European investment landscape, supported by structural housing shortages, demographic change and growing demand for flexible living formats.
The Autumn House view adds the location dimension. While sector fundamentals remain critical, Catella’s analysis shows that successful capital allocation will increasingly depend on selecting the right cities as well as the right sectors.
“There is no single best city to invest in. Future returns will increasingly depend on matching the right city with the right investment strategy and risk profile”, Catella’s research concluded.
“Investors should not be looking for a single winning city but for the locations where the underlying fundamentals best support their investment strategy and return objectives,” Blazkova said.
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