What are the 25 best European cities to invest in short-term rentals in 2024?

Short-term rentals are a major growth market

The European short-term rental market is booming.

Over the past two years, vacation rental listings have surged by 2.4 million - a 38% increase in potential supply - making Europe the largest market globally.

Investors and homeowners are flocking to the sector, driven by robust consumer demand. European reservations are up by more than a third in 2024 compared to 2019, with occupancy rates continuing to rise despite the expansion in supply.

With this in mind, we've identified the top short-term rental investment opportunities across Europe.

In addition to analyzing the top 25 destinations based on Revenue per Available Rental (RevPAR) to understand their revenue potential, we’ve also factored in acquisition costs to give you a head start in pinpointing profitable properties.

What is RevPAR & why is it important for property investors

Revenue Per Available Rental (RevPAR) is a key metric that represents the revenue generated by a property, averaged across all availability within a given period. This metric combines rate and occupancy data, providing a reliable indicator of revenue performance and enabling hosts to price their properties strategically.

For instance, if a property is booked 50% of the month at an Average Daily Rate (ADR) of $100, the RevPAR would be $50.

RevPAR isn’t just useful for individual hosts. Destination Management Organizations (DMOs) and tourism bodies also leverage this metric to assess economic impact, evaluate destination competitiveness, monitor performance, forecast and attract investments and foster collaboration opportunities, all of which contribute to the sustainable growth and success of the tourism sector.

For property investors, RevPAR is arguably the most pivotal metric in understanding the ROI potential of any given property or market.

To maintain a consistent and fair comparison, our analysis focuses exclusively on locations with more than 1,000 two-bedroom properties, using this property type as the benchmark across all selected cities.

Best European cities to invest in short-term rentals from a purely RevPAR perspective

When we look at the highest-yielding locations for short-term rentals, it's a who's who of major tourism destinations.

Amsterdam, Barcelona, Dubrovnik, Edinburgh, Florence, London, Paris, and Rome all rank in the top 10 - each a global icon in its own right. Seville and Croatia’s coastal resorts round out the list, demonstrating the diverse opportunities available across Europe.

Edinburgh stands out as the top performer, with a RevPAR of $265 - 75% higher than the median for these top 25 cities. This represents substantial earning potential, although it’s important to note that these figures may have been influenced by the Taylor Swift Eras Tour in early 2024.

A more complete picture: Cost vs. Revenue

While these markets offer excellent daily revenue potential, seasoned investors know that revenue is only half the story. Property acquisition costs are equally critical, especially given the significant variance, even among the top 25 cities.

Among the cities we have examined, there’s a $14,000 difference per square meter between the most and least expensive cities, according to figures for a two-bedroom apartment in a city center from Numbeo, a website that compiles cost of living figures from across the world.

In London, a two-bedroom apartment in the city center can cost upwards of $17,000 per square meter, while in Valencia, it’s just over $3,000. Scale that to the average 65-square-meter European apartment, and the price difference reaches nearly $900,000.

To give a clearer picture of investment potential, we calculated a ratio of property prices to RevPAR. This metric highlights the revenue relative to the cost of acquiring a city-center apartment and reveals a much different ranking than RevPAR alone, underlining the wide difference in investment potential after accounting for property costs.

Valencia, with its low property prices, climbs from the bottom five for RevPAR to the top five for investment potential. Paris and London, which, as European tourism powerhouses command high rates and sat at the top for RevPAR, fall to the bottom five by this measure.

Topping the list is Seville, followed by Novalja and Edinburgh, which continue to shine across both measures. Seville’s property costs are 17 times larger than its RevPAR, compared to London’s 85 times. Interestingly, Iberia dominates the list of high-potential locations, with eight out of the 25 cities in Spain or Portugal.

Markets like Seville, Edinburgh, Novalja, Florence, and Dubrovnik stand out for their strong RevPAR trends and relatively low prices per square meter, making them particularly attractive for short-term rental investors. However, investors in Seville, Edinburgh, and Florence must remain vigilant about local legislation, as regulatory changes could impact future returns.

Coastal Adriatic markets such as Novalja, Dubrovnik, and Split offer a compelling balance of strong RevPAR, lower property costs, and, for now, more lenient regulatory policies. These factors make them appealing options for investors seeking profitability with lower legislative risk.

On the other hand, Tier AAA cities like London, Paris, and Berlin, while boasting high RevPAR, present significant challenges due to steep property prices and increasingly stringent regulations. The disparity shows how an investment in some of these higher-priced locations while yielding more per night, would take considerably longer to break even for any potential investor.

This is especially so as our RevPAR measure includes those all-important occupancy levels. Seville and Edinburgh, for example, measured formidable occupancy rates across the first half of 2024, registering average occupancies of 67% and 64% across rentals in each respective location. This compares to 52% in Berlin and 49% in London.

As a rough indicator let’s take these numbers and run them for our hypothetical average two-bedroom apartment. Assuming an 80% loan-to-value ratio, it would take two and a half years to repay the loan (not including accrued interest) in Seville, compared to a much longer 12 years in London. This illustrates the significant impact of acquisition costs on investment timelines and potential returns.

Investors should also exercise caution in Spain, particularly Barcelona and Malaga, which are currently at the center of the over-tourism debate. As the flashpoint for regulatory scrutiny, Barcelona’s actions may set a precedent that other major cities in the region could follow, making this market one to watch closely.

Investors need to understand regulatory risk

Understanding the investment potential of these cities is just the beginning. To make informed decisions, investors must also consider the evolving short-term rental regulatory landscape and broader market trends. Europe is at the forefront of introducing legislation to monitor and regulate the sector, and investors need to stay informed about both EU-wide and local regulations.

The EU, for example, now requires platforms to share host information with local authorities. The UK is scoping out similar legislation.

Local regulations are also tightening, with several of our top destinations subject (or soon to be subject) to increasingly stringent rules. Scotland mandates a license for vacation rentals, Italy has updated its laws to enhance tracking and taxation, and Barcelona plans a total ban on short-term rentals starting in 2028.

Investors must, therefore, consider multiple dimensions - not just RevPAR but also local affordability and the regulatory environment - to ensure a sound investment strategy.

2024 and 2025 European RevPAR growth outlook

As supply in the European market has surged, RevPAR growth potential has become more muted, and this is something else to be considered.

Across H1 2024 occupancy and average daily short-term rental rates were slightly down compared to the same period in 2023. Occupancy was down 3% Year-on-Year (YoY), impacting average rates, which were down 4%.

Some of this also comes from a more cautious consumer, with reduced spending power (for more on this click here for our H1 summary).

Looking ahead, while wages are expected to rise above inflation in 2025, the continued expansion of supply suggests that RevPAR gains will be limited. In this environment, investors should focus on high-performing destinations while also considering second-tier cities that offer better relative value

Conclusion

2024 presents a unique landscape for short-term rental investors. While major tourism hubs continue to command high nightly rates, the real opportunity lies in identifying markets where the cost-to-revenue ratio is most favorable.

As always, a nuanced approach is key. By balancing RevPAR potential with property costs and keeping a close eye on regulatory developments, investors can position themselves for success in this dynamic market.

Ready to explore these opportunities further? Whether you're a seasoned investor or new to the market, now is the time to dive deeper into these European hotspots.