City spent £215m in the summer transfer market to take the total outlay on their squad to 853m euros (£775m).
That is £3m more than the amount spent by Paris St-Germain, who signed Neymar in the summer for a world record £200m.
Manchester United, who have spent 784m euros (£712m) on their current squad, are third.
They were top of the table last year, but the value of their squad has only increased by £66m this summer.
The CIES data covers Europe’s big five leagues – the top divisions in England, France, Germany, Italy and Spain.
Premier League teams fill six of the top 10 positions, and have the highest average squad worth of 287m euros (£261m).
|All figures from CIES Football Observatory|