Published on and written by Cyril Jarnias
After a phase of overheating followed by a sharp correction, the German real estate market has changed its face. Gone are the days when “bricks and mortar” seemed only able to rise. The data now shows a market in a cautious recovery, driven by a chronic housing shortage, still dynamic demographics in the major cities, stabilized interest rates, and also by regulatory tightening around energy efficiency. This new cycle is redrawing the geography of opportunities—for both owner-occupiers and investors.
From a Spectacular Boom to a “New Normal”
For over a decade, the German residential real estate market experienced an almost uninterrupted rise. Between 2015 and 2021, nominal prices increased by an average of about 6% per year, with an impressive peak of 12.6% in 2021. This trajectory clearly deviated from the long-term trend, estimated at +4% per year over the last twenty years.
Cumulative correction in residential prices between the market peak in early 2022 and the trough in mid‑2024.
However, aggregated data indicates that this downward movement is now a thing of the past. In 2024, nominal prices had already stopped falling (+1.9% in the fourth quarter), and the rise was confirmed in 2025: the residential property price index published by Destatis increased by 3.18% year-on-year in the second quarter, the vdp measured +3.6% in the third quarter, and the Value AG database reported increases of around +3% for existing apartments and a little over +4% for new builds. On an annualized basis, most indicators converge towards an increase of between 3% and 4% by mid‑2025.
Adjusted for inflation, prices fell by over 11% in 2022, then by a little over 10% in 2023. By early 2026, they remain 8 to 10% below the 2022 peaks, marking a clear deflation of the 2020-2021 bubble.
Forecasting institutes now speak of a “normalization phase”: rapid and emotional price rises are giving way to a more rational market, where performance no longer depends on general inertia, but on asset quality, energy efficiency, location, and buyers’ ability to structure their financing.
Moderate but Fairly Solid Growth: What Do the Forecasts Say?
Most projections for 2026–2027 converge towards a scenario of moderate growth, with neither a crash nor a new boom.
The main institutes and banks provide surprisingly similar trajectories:
| Source / Scenario | 2025 (forecast or actual) | 2026 (forecast) | 2027 (forecast) |
|---|---|---|---|
| Reuters Survey (Nov. 2025) | +3.5% | +3.4% | +3.2% |
| Reuters Survey (Sept. 2025) | +3.0% | +3.5% | – |
| Synthesized Base Scenario | +3.5% | +3.2% (2–4%) | +2.8% (2–3.5%) |
| Trading Economics | – | +2–3% / year | +2–3% / year |
| LBBW | – | +3–4% | – |
Economists describe a market entering a more “predictable” phase in 2026: low to moderate nominal increases (1 to 4% per year), slightly below the long-term trend, with prices that, even in 2027, are expected to remain below the 2022 peak in nominal terms, and significantly below in real terms.
The risk of a marked market relapse in the short term is considered low, unless there is a major macroeconomic shock or a surprise surge in mortgage rates beyond 4.5–5%. Conversely, a drop in rates below 2.5% could trigger another price surge, but this scenario is not the most likely at present.
Interest Rates: The New Mortgage Landscape
The cycle shift is largely explained by interest rates. After over a decade of cheap credit, the sharp rise in sovereign yields and the cost of debt caught households and developers off guard.
Between January and August 2025, German banks granted €162.8 billion in new housing loans.
Monetary policy has since eased. The ECB lowered its rates twice in 2025, bringing the deposit facility rate to 2% in December. In the German market, 10-year mortgage loans are now trading around 3–3.5% (with conservative estimates up to 3.8–4.4% depending on the source and period), and most analysts anticipate them remaining in a 3–4% range in 2026. Credit margins for the best assets have compressed, around 150–180 basis points, compared to 200–250 basis points at the height of the crisis.
The restart of transactions does not mean a return to the exceptionally favorable credit conditions of the 2015-2021 period, which is considered a historical anomaly. The very low rates of that era are unlikely to recur in the medium term. For investors, performance will now have to rely primarily on the quality of rents and intrinsic asset valuation prospects, and no longer mainly on financial leverage.
A Structural Housing Shortage That is Worsening
The fundamental driver of German residential real estate remains the tension between supply and demand. And in this regard, the figures are telling: according to the public BBSR institute, the country needs around 320,000 new homes per year between 2023 and 2030 to keep pace with demographic needs and new household formation. Other political scenarios had even set a target of 400,000 units annually.
Approximately 251,900 homes were completed in 2024, a drop of over 14% compared to 2023.
At the same time, structural demand exceeds 300,000 to 350,000 new homes per year. The annual deficit is therefore between 80,000 and 100,000 units, a “gap” that accumulates year after year. Overall, the housing shortage is described as “chronic” by several observers, with a risk of increasing tensions in the second half of the 2020s, when the current contraction in construction will translate into a lack of delivered supply.
This example illustrates the multi-factorial causes of the slowdown in the construction sector: a cost increase of about 64% since 2010 (+3.2% year-on-year in February 2025), increased complexity of technical and environmental standards, slow urban planning procedures, reduced margins for developers, and a shortage of skilled labor in construction.
In an attempt to loosen the grip, the federal government launched a “Wohnungsbau-Turbo” (housing construction turbo) in 2025. Adopted in June, this measure modifies the building code via a new article (§ 246e), allowing until 2030 to simplify planning procedures and accelerate permits, with the possibility of automatic approval after certain deadlines. A record envelope of €110 billion in public investment related to housing was announced for 2025. But concrete effects on construction starts are not expected before 2026–2027, as the average lead time between permit and delivery ranges between 26 and 34 months.
Demographics and Urban Concentration: Pressure Remains Strong in Metropolises
German demographic dynamics also contribute to market tension. The population grew by over 3% in ten years to reach about 83.6 million inhabitants in 2024, and even over 84 million at the end of 2023 according to other estimates. This growth is largely driven by international migration, with net immigration offsetting the aging domestic population and low birth rates.
The anticipated population increase by 2045 in Germany’s seven major metropolitan areas, contrasting with the expected decline in medium-sized cities.
Another crucial element: approximately 70% of new residents settle in metropolitan areas. The targeted skilled immigration to fill labor shortages primarily concerns the job markets of large agglomerations. The government estimates that about 400,000 new immigrants per year will be needed to counter demographic decline and meet labor market needs—which will continue to fuel demand for urban housing, whether for rent or purchase.
A synthesis of residential tension indicators, highlighting the gap between needs and housing production in the metropolitan areas studied by JLL.
The gap between housing needs and actual production is particularly striking in the studied metropolises.
The table synthesizes several key indicators for measuring residential tension in these markets.
| City | Completions 2024 (per 10,000 inhab.) | Unmet Need (units / 10,000 inhab.) | Population Change 2024 |
|---|---|---|---|
| Frankfurt | 55 | 27 | +0.9% |
| Hamburg | 42 | 4 | +0.6% |
| Munich | 41 | 20 | +0.93% |
| Leipzig | 41 | 53 | +0.6% |
| Berlin | 40 | 20 | +0.5% |
| Düsseldorf | 30 | 10 | Slight increase |
| Stuttgart | 22 | 40 | Slight decrease |
| Cologne | 16 | 29 | +0.1% |
Even in markets that build a lot (Frankfurt, Hamburg, Munich, Leipzig), demand still exceeds supply. At the other extreme, Cologne and especially Stuttgart combine low completion levels and a significant deficit.
A Dominant and Increasingly Tight Rental Market
Germany stands out in Europe for its very high rental rate. More than half of households (52.2–52.8% depending on the year and source) are tenants, compared to only 47.5% in 2014. The country thus has the largest share of tenants in the European Union. The culture of long-term renting, lease stability (average duration of about 11 years), and the lack of strong tax incentives for homeownership (no mortgage interest deductibility for owner-occupiers) partly explain this model.
The apartment rent index increased by 3.7% nationwide in 2024.
In the first half of 2025, rents in the eight largest cities increased by an average of 4.9% year-on-year (compared to 8.1% the previous year). Rents for existing homes jumped by 6.8%, while new builds increased by only 3.3%, after a surge of over 10% last year. The tension is particularly strong in Hamburg (+13.7%), Leipzig (+11.4%), and Düsseldorf (+8.3%). Berlin stands out with near-stagnation (+1%), after years of much sharper increases.
The levels reached in some metropolises illustrate this tightening:
| City | Median Rent H1 2025 (€/m²) | Annual Change H1 2025 |
|---|---|---|
| Munich | 24.11 | +6.4% (existing homes) |
| Berlin | 19.49 | ≈ +1% |
| Frankfurt | 16.8 | +7.2% |
| Hamburg | 17.79 | +13.7% |
| Cologne | 16.27 | +8.5% |
| Düsseldorf | 15.07 | +8.3% |
| Stuttgart | 12.25 | +4.8% |
| Leipzig | 11.00 | +11.4% |
Even though rents remain on average more affordable than in London or Paris (the rent-to-income ratio is around 25% in Germany, compared to nearly 40% in those capitals), many households in large cities spend over 40% of their net income on housing. In Munich, buying an average apartment represents about 15 to 17 years of median gross income, highlighting the tension for homeownership.
The rent cap on new leases (Mietpreisbremse) is extended until 2029 in tight markets, limiting new rents to 10% above the local reference rent. Rules for index-linked leases could also be tightened. For investors, rent increases remain regulated, but strong demand and the supply deficit support rental values, particularly for well-located and energy-efficient properties.
Gross rental yields remain moderate nationwide, around 3.5% on average for apartments (3.51% in September 2025), with marked variations between markets: about 2.3–2.7% in Munich, 2.5–3.0% in Frankfurt, 2.8–3.2% in Hamburg, 3.0–4.0% in Berlin, and 4% or more in secondary cities like Leipzig or other B-cities in Eastern Germany.
Marked Price Differences Between Major Cities
The German market is far from homogeneous. The segmentation between expensive metropolises, intermediate cities, and more affordable markets has strengthened since the crisis, with some segments correcting more than others. Data from Value AG or JLL allows for a fairly detailed mapping.
In the third quarter of 2025, the average purchase prices nationally are €3,499/m² for existing apartments and €5,570/m² for new constructions. But national averages hide considerable gaps:
| City (Q3 2025) | Existing Apartment (€/m²) | New Build (€/m²) | Annual Change (existing / new) |
|---|---|---|---|
| Munich | 8,580 | 11,514 | +4.6% / –0.7% |
| Berlin | 5,533 | 8,352 | +3.3% / +2.7% |
| Hamburg | 5,743 | 8,859 | +2.4% / +7.0% |
| Cologne | 4,961 | 7,116 | +6.8% / +3.4% |
| Frankfurt | 6,079 | 8,170 | +2.1% / –3.9% |
| Stuttgart | 4,565 | 8,243 | +1.5% / –4.1% |
| Düsseldorf | 4,833 | 7,518 | +7.8% / 0.0% |
| Dortmund | 2,541 | 4,310 | +4.4% / +1.5% |
| Essen | 2,562 | 5,405 | +8.1% / –1.7% |
| Leipzig | 3,033 | 5,200 | +2.7% / 0.0% |
Munich remains, by far, the most expensive city, with a condominium market where the median price of the existing stock reached about €8,611/m² in the first half of 2025, and nearly €11,000/m² for new builds. But growth there has clearly slowed: annual growth of 0.6% for the entire stock, 2.6% for existing, while new builds stabilize. The city appears as a “mature” market, where most of the upside potential is now in niche segments (prime locations, highly energy-efficient products).
The price of condominiums in Leipzig has increased by over 30% in five years.
Energy Efficiency: A New Cleavage in Asset Values
One of the major changes in this cycle lies in the massive consideration of building energy performance. Driven by the Building Energy Act (Gebäudeenergiegesetz – GEG), European directives like the EPBD, and increasing pressure from institutional investors on ESG criteria, the property portfolio is now split between “green assets” and “stranded assets”.
Buildings with good energy ratings (DGNB, BREEAM, LEED labels, or KfW-Effizienzhaus level) benefit from strong demand, better financing conditions (KfW loans of up to €150,000 per home), and more stable resale value. Conversely, energy-inefficient buildings (labels F, G, or H) suffer significant discounts, potentially reaching 15 to 20% compared to 2022 prices.
Upgrading an old building can cost between €500 and €1,000/m², and the time to find craftsmen and carry out the work can exceed twelve months, given the tension in the construction trades. The national rate of energy renovation is still very insufficient, estimated at 0.69% of the housing stock per year in 2024, far from the European target of 2% under the “Fit for 55” package.
For investors, the trade-off is delicate: choose between buying discounted properties in need of renovation, hoping for revaluation after works, or focusing on new or already high-performing renovated properties, which are more expensive but less risky in the long term. In any case, energy efficiency has become a central determinant of the liquidity and market depth of a residential or commercial asset.
A Gloomy but Relatively Stable Economic Environment
On the macroeconomic front, Germany is barely emerging from a technical double-dip recession. GDP contracted by 0.9% in 2023, then by 0.5% in 2024. For 2025, prospects oscillate between stagnation and slight contraction (–0.2% according to the Bundesbank, +0.2% according to the IMF). The 2026 horizon is a bit clearer, with forecasts for modest growth: 0.9% (IMF) to 1.1% (European Commission).
Inflation rate forecast for 2024, sharply down from 8.7% in 2022.
The unemployment rate remains low by international standards (3.7% in August 2025, with an expectation of 3.3% the following year), but nearly 28% of companies cite recruitment difficulties. This context of skilled labor shortages fuels economic immigration policies, particularly in major cities, where high value-added sectors (tech, financial services, healthcare, etc.) are concentrated. These are precisely the areas suffering most from the lack of housing, creating a feedback loop between the labor market and the real estate market.
The government announced a €500 billion infrastructure and climate fund to finance massive investments.
Investment Market: Gradual Return of Volumes and Foreign Capital
On the investment segment, the year 2025 marks a turning point after the collapse of 2023. The total volume of commercial real estate transactions reached about €34.3 billion in 2024, and forecasts project €35 to 40 billion for 2025, with normalization expected around €30 to 35 billion in 2026.
In this recovery, international investors are playing an increasing role: over 44% of commercial volumes and 34% of residential transactions in 2025 involve foreign capital, compared to barely 15.6% participation in residential the previous year. North American investors are particularly active, notably in residential and logistics assets, often via value-add or core-plus strategies.
Prime yields are stabilizing or compressing slightly as rates ease and quality products become scarcer:
| Segment / Location (end 2025) | Approximate Prime Yield |
|---|---|
| Offices Top‑7 (average) | 4.75–4.80% |
| Offices Berlin | 4.6% |
| Offices Munich | 4.4% |
| Offices Frankfurt | 4.95% |
| Residential Top‑7 | 3.40% |
| Logistics | 4.40–4.50% |
| Hospitality | 5.25–5.50% |
Analysts anticipate a further compression of 30 to 40 basis points on average by 2026, particularly in markets perceived as safe havens (Germany, the UK). In this context, core and core-plus assets capture about half of institutional allocations, while value-add strategies are developing, targeting repositioning (energy renovation, change of use, management improvement).
Refinancing needs in Germany’s multifamily rental residential sector amount to about €70 billion.
Local Foci: Tension in Major Metropolitan Markets
Detailed reports on the main cities illustrate well the national trends and local specificities.
In Berlin, the population exceeded 3.89 million inhabitants by the end of 2024 (+0.5%), driven by international immigration. Construction starts are faltering: 9,772 housing permits in 2024, down 38.5% year-on-year, confirming a continuous decline in permits for eight years. JLL estimates a shortage of about 20 homes per 10,000 inhabitants, despite relatively high construction activity (40 completions per 10,000 inhabitants). Rents have generally slowed (+1% year-on-year in H1 2025) but remain at a high level with a median around €19.49/m² and very strong increases over five years (+49.9%).
Hamburg delivered 8,319 homes in 2024, a 39% increase compared to the previous year.
Munich, for its part, embodies the extreme combination of scarcity and high cost. With 1.6 million inhabitants (+0.93% in 2024), the city shows completions down 34% (6,503 homes in 2024), permits down (8,329, –8.4%), and an estimated deficit of 20 homes per 10,000 inhabitants. Rents exceed €24/m² median, prime rents €36/m², while condominium prices are around €8,600/m² for the overall stock and €11,000/m² for new builds. The capacity for further price increases seems limited, but the strength of demand still makes it an extremely liquid market.
Number of homes missing per 10,000 inhabitants in Leipzig, illustrating the massive housing deficit in this city with strong demographic growth.
Implications for Buyers and Investors
For households looking to buy, the 2026 landscape is both more readable and more demanding than in previous years. The probability of buying “at the peak” of a bubble has decreased, as prices have corrected and then resumed on more sustainable bases. But the environment remains costly: rates are much higher than before 2022, transaction costs (property transfer tax of 3.5 to 6.5%, notary fees, possible agent commission) represent 9 to 12% of the price, and prices, in major cities, remain high in absolute terms.
For investors, the key message from various studies boils down to a few points:
Future performance will depend on the intrinsic quality of assets (location, energy efficiency, renovation potential). Residential remains a pillar supported by structural shortage, with more attractive yields in secondary cities. Logistics shows solid fundamentals and yields higher than prime offices. The office market is two-tiered, favoring modern and central assets, while older assets require transformation. Regulatory tightening (CSRD, energy) reinforces the value of already compliant assets.
In this “new normal”, Germany remains one of the pivotal markets in European real estate: great market depth, political stability, robust financial system, massive need for housing and infrastructure. But the margin for error has narrowed. The time is for fine-tuned strategies, local analysis, and the ability to anticipate future energy and regulatory requirements as much as developments in demographics and employment.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
