Residential property remains the first choice for institutional investors

Stable market environment, selective capital and structural bottlenecks in new construction characterise the residential investment market in 2025

The residential investment market is proving more stable than many had expected at the end of the year. Although there have been no major deals to date, a transaction volume of around €8 billion is considered certain for 2025 – with potential for growth if individual large deals are realised. Capital is generally available, but is being allocated in a much more selective and deal-specific manner. Buyers have more room for negotiation, processes are taking longer, and yield requirements for core residential properties are currently around 3.75 to 4.25% cash-on-cash. There have been no major fire sales so far, even though IRR expectations remain high in the value-add segment. However, the biggest structural challenge lies in new construction: The condominium market has largely come to a standstill, while the volume of institutional capital is insufficient to close this gap through rental housing construction. Without political impetus – for example, in terms of ancillary construction and acquisition costs – there is a threat of a massive housing shortage in the medium term, particularly in conurbations. Nevertheless, residential property will remain the number one asset class for institutional investors in 2025 and beyond.

Economy & real estate: Interest rates high, recovery delayed

The environment remains challenging

Hopes for falling interest rates are fading. According to Bloomberg, experts hardly expect any further interest rate cuts following the latest move by the US Federal Reserve. Rising government spending and higher new borrowing are likely to drive bond yields further upwards – including in Germany. Accordingly, two-thirds of the experts surveyed in the Interhyp bank panel expect construction interest rates to rise. The interest rate for ten-year loans is currently around 3.77%, the highest it has been since winter 2023.

At the same time, the economic situation remains weak. The Ifo Institute is further lowering its growth forecasts: growth of only 0.1% is expected for 2025 and around 0.8% for 2026. Government investment programmes are having a stabilising effect, but their effects are only becoming apparent after a delay. Inflation remains slightly above 2%.

Property tax update: Federal Fiscal Court confirms Scholz model

Federal model remains valid, associations move to Karlsruhe

The Federal Finance Court has now fully confirmed the federal model for property tax and dismissed all pending lawsuits. For investors, this initially means legal certainty: the valuation mechanism of the income approach, as well as the flat-rate standard land values and net cold rents, remain valid and continue to form the basis for property tax calculations in eleven federal states. At the same time, the issue remains politically and legally fluid. Haus & Grund and the Taxpayers' Association have announced constitutional complaints, and state-specific models – for example in Baden-Württemberg, Bavaria and Hamburg – will also be reviewed in the coming months. For institutional holders, this means monitoring notices and valuation bases, especially for large-volume portfolios in several states, as changes from Karlsruhe may result in the long term.

Logistics real estate in transition: new drivers of demand, new opportunities

Asian users, e-commerce and defence provide tailwind

The logistics property market is noticeably calming down – and gaining new momentum in the process. While construction and financing costs are not returning to pre-2020 levels, vacancy rates are now less a question of price and more a question of structure. Modern properties in good locations remain in demand, not least from Asian users, e-commerce and, increasingly, the defence sector. At the same time, pricing is stabilising, capital values are showing initial upward trends and institutional investors are acting with renewed confidence. Particularly in demand are properties with solid substance, clear location quality and prospects in terms of energy supply and automation.

Premium Residential Property: More Supply, Falling Prices

The market for high-end residential real estate in Germany’s Top 7 cities remains in flux

According to an analysis by Dahler based on ImmoScout24 data, supply in the premium segment expanded noticeably in the third quarter, while both demand and asking prices came under pressure.Among the top 10% most expensive apartments, the number of listings increased by 9.4% quarter-on-quarter – most notably in Düsseldorf (+15.9%) and Hamburg (+13%). At the same time, the median asking price across all Top 7 cities declined by 3.3%. Düsseldorf saw the sharpest price drop (-6.3%), while Cologne stood out as the exception, recording a slight increase of 2.5%.Supply also rose in the premium single-family home segment (+11.9%), with average asking prices edging down slightly. Overall, the number of inquiries per property fell by around 4.2%. The main driver is the growing supply: many owners in the premium segment are currently willing to sell, while buyers are acting more selectively. As a result, demand is spread across a larger number of properties, leading to fewer inquiries per individual listing.

Office properties: Operating costs are rising – and more sharply than expected

Why cost increases are now becoming a game changer in the office market – and why even premium properties do not automatically save money

Operating costs in the German office market are rising noticeably – and at a faster rate than general inflation. According to the NEO Office Report, costs are rising by an average of around 5%, both for owner-occupiers and investor properties. Surprisingly, even premium buildings with sustainability certification do not offer any structural cost advantages. While a quarter of properties have been able to reduce costs, more than half have seen significant increases. This makes it clear that it is not the building standard that determines economic efficiency, but the quality of asset, property and facility management. For investors, this means that operating costs are becoming a real performance factor.

Residential investment market 2025: creativity shapes the new transaction phase

Forward deals, joint ventures and international capital drive the pipeline

The residential investment market is showing more movement again at the end of the year – and, above all, significantly more creativity. While German core capital continues to be very selective and usually only buys up to around €50 million, international investors with larger tickets are driving market activity. Particularly striking is the comeback of forward deals, provided that the location, developer credit rating and existing building rights are right; forward periods of 18–24 months are once again common in the market. Large neighbourhood developments are increasingly being implemented in joint venture structures rather than classic forward funding. At the same time, "brown to green" strategies are gaining in importance as properties in need of renovation are becoming attractive again due to falling entry prices. Despite public fatigue with ESG, energy efficiency remains a decisive factor for core investors – because without it, stable exits are hardly possible.

Serial social housing construction receives increased support

Pace of social housing construction

The federal government is picking up the pace on social housing construction: Federal Minister of Construction Verena Hubertz (SPD) has signed the administrative agreements for social housing construction and the special "Young Living" programme for 2026 and 2027 – for the first time directly for two years in order to simplify procedures. A total of €9 billion is available for social housing construction, and from 2027 the budget for "Young Living" will even be doubled to €1 billion per year. Together with the federal states, serial, modular and systemic construction is also to be promoted more strongly – a step that will shorten construction times and reduce costs.

Data centres: AI drives demand to record levels

Sharp increase in the first three quarters of 2025

Demand for data centres specifically designed for artificial intelligence tripled across Europe in the first three quarters. According to CBRE, contracts signed rose to 414 MW, up from 133 MW in the previous year. The Nordic countries, especially Norway and Iceland, are benefiting particularly, thanks to their cheap and sustainable energy. At the same time, so-called neocloud providers such as CoreWeave are gaining in importance and increasingly taking over space that was originally intended for hyperscalers. In Frankfurt – Germany's most important market – there were no new completions in the third quarter, but 227 MW are planned for 2025. Across Europe, demand is likely to exceed new supply (871 MW) again in the coming year, further tightening the market.

Residential investment barometer: sentiment continues to brighten

Residential Investment Barometer

The new residential investment barometer from Schick Immobilien signals significantly more favourable market conditions. The index has jumped to 59.6 points – the highest value since the survey began – and is thus a good twelve points above the previous year's figure. Over 80% of the more than 3,000 private and commercial investors surveyed expect purchase prices to remain stable or rise, with around 60% even planning new purchases. The assessment of investment opportunities has also improved noticeably: 85% now rate the situation as neutral to positive, while the proportion of negative assessments has fallen to around 15%. While long-term portfolio management remains important, many market participants want to become more active again. It is striking that economic risks are becoming less important – over 85% see possible interventions in tenancy law as the greatest risk. Regionally, the focus is shifting back to A cities, led by Berlin, which 60% of respondents rate as "attractive" or "very attractive". "Anyone investing in Berlin is consciously playing the long game," says Jürgen Michael Schick.

Increase in orders yes – turnover in residential construction lags behind

Data from the Construction industry

Demand is picking up significantly in the main construction sector: real order intake rose by a robust 7.7% in September compared with August, reaching its highest level since spring 2022. Civil engineering was particularly strong (+13.2%), while building construction grew moderately by 1.7%. The trend is also upwards in a three-month comparison (+4%). Compared to the same month last year, the figure is even +20.7% – albeit boosted by a few large orders and a weak comparative figure. Despite this momentum, turnover in residential construction remains subdued: although turnover in construction as a whole rose by 5.1% in September (nominal +7.4%), residential construction recorded a real decline of 3.9% in the first nine months of 2025. According to HDB Managing Director Tim-Oliver Müller, this is mainly due to delays at larger companies and the fact that single-family home projects requiring approval are often carried out by smaller companies that are not included in the official monthly data. The boost in turnover is therefore likely to be visible only after a delay.

Politics sends signal for faster and cheaper construction

Construction ministers call for more freedom, less EU bureaucracy and clear incentives for new construction and renovation of existing buildings

The Conference of Building Ministers is sending a clear signal: simpler, faster and more cost-effective construction should finally become a reality. A new platform for "cost-reduced construction" is to be set up in future to pool best practices and simplify the transfer of knowledge between the federal government, the states, local authorities and the construction industry. At the same time, the federal states are pushing for the rapid introduction of building type E, whose first pilot projects are already showing construction costs that are more than 15% lower. The ministers are also calling for more leeway in public procurement law to make serial and modular construction easier to use. In addition, the federal states are focusing on tax incentives: new buildings should be able to be depreciated over 50 or even 80 years, which could improve cash flow in social housing construction. Relief measures for the conversion of existing buildings – for example, in terms of clearance areas, heat and sound insulation – are to be incorporated into the model building code, and Bavaria is even planning its own conversion code. The ministers were critical of EU requirements, in particular the EPBD and the Restoration Directive, which, according to North Rhine-Westphalia, block additional building land. The clear demand to the federal government is that all EU rules that make building and housing more difficult should be rejected – and that Europe finally needs a realistic construction cycle that speeds up planning and approval processes.

Office market in B cities: rents rise despite higher vacancy rates

Figures from the Deutsche Immobilien-Partner (DIP) estate agent association

The office market in Germany's B cities presents an ambivalent picture: while total take-up in the first three quarters rose by 7% to around 437,500 m², vacancy rates rose significantly at the same time. Across all 15 cities surveyed, vacancy rates climbed by 22% to 9.48 million m² within a year – only Magdeburg recorded a decline in the rate to 4.9%. A closer look reveals a significant spread: Karlsruhe (+132%) and Magdeburg (+97%) saw strong growth in take-up, while Leipzig and Essen each lost around a third. Despite this inconsistency, prime rents continue to rise – by an average of 10% to £42.20/m², driven by strong increases in Karlsruhe (+50%) and Hanover (+14%). For investors, this means that the market remains challenging, but high-quality and ESG-compliant space continues to hold its own and is becoming noticeably more attractive in selective B locations.

Cautious optimism – big tickets remain scarce

Bulwiengesa autumn forecasts

Bulwiengesa's new autumn forecasts paint a cautiously positive picture of the property markets: the residential, office, retail and logistics segments are slowly emerging from crisis mode, but there is still a lack of large transactions. Buyers with strong equity capital are particularly active – US investors, family offices and, in the residential sector, increasingly municipal and non-profit players. While forward deals in subsidised housing construction are increasing sharply, German institutional investors remain cautious. In many sub-markets, the first signs of price and stabilisation momentum are emerging: in the residential sector, purchase price factors are rising slightly, while new construction is benefiting from scarce supply and rising demand. The office markets remain mixed – prime locations are seeing rising top rents, while at the same time vacancy rates are growing, especially in Berlin. Retail is stabilising in prime locations, and the logistics market is seeing more demand, albeit without the large big boxes. Overall, there are many indications that 2025 will remain a transitional year – with more activity, but still clearly dominated by players with strong equity capital.

2026 budget: Tailwind for new construction and home ownership

The federal government has its first budget for an entire calendar year

With the newly approved federal budget, the government is sending a clear signal to the housing market: more subsidies, more programmes, more investment security. The EH-55 subsidy is returning with €800 million, making numerous projects that were already planned economically viable again. The "Climate-Friendly New Construction" programme is growing to €1.2 billion, and in 2026 the new "Commercial to Residential" programme will be launched to promote the conversion of vacant space. Families will benefit from additional funds to promote home ownership, and age-appropriate conversions will also be subsidised again for the first time in years. For developers and investors, this means better calculation bases, additional financing paths and the opportunity to tackle stalled projects with new momentum.

Whole loans establish themselves as a permanent fixture

New FAP Report

The market for alternative real estate financing remains challenging, but is showing noticeable signs of improvement, as confirmed by the latest FAP Real Estate Private Debt Report Germany. Whole loans and stretched senior structures in particular are shaping market activity and continuing to gain importance as flexible alternatives to traditional bank financing. With an average LTV of 72%, whole loans are slightly below the previous year's level. At the asset level, residential and mixed-use properties dominate, while hotels with viable operating concepts are becoming significantly more attractive. Project financing is also slowly returning, with the first specialised funds once again focusing specifically on this segment.

Mezzanine financing, on the other hand, remains a niche market, often provided by smaller credit funds and family offices for smaller-scale financing. International private equity firms are showing interest, but their high interest rate expectations and ticket sizes starting at €20 million are often not in line with the market at present. At the same time, banks are starting to move again for the first time: initial signs of haircuts and debt waivers indicate that the market is reorganising itself and all sides are readjusting.

Office market: Only slight upward trend in the third quarter

JLL-Performance-Index

The positive trend in prime office locations continued in the third quarter, albeit at a slower pace. JLL's Victor performance index rose by 0.8% to 171.2 points for Germany's five largest office markets, following a 1.2% increase in the previous quarter. The rental market remained the growth driver, while the investment market continued to show little movement. "The summer break is lasting longer than expected," said Ralf Kemper of JLL. Düsseldorf in particular rose by 1.1% to 154.8 points, followed by Munich (+0.9%), Hamburg (+0.8%) and Berlin and Frankfurt (both +0.6%). In Hamburg, the market benefited from falling vacancy rates, while Munich was driven primarily by rising prime rents. In Frankfurt, on the other hand, prime rents are stagnating – a sign of continued caution in the investment segment.

EH-55 funding to enable up to 90,000 new homes

Signal for housing construction from politicians

The planned resumption of EH-55 funding from December onwards has been met with positive reactions in the real estate industry. According to GdW President Axel Gedaschko, the association's member companies alone could build up to 20,000 apartments in the short term – and with an interest rate of 1%, around 90,000 new units could be built nationwide. ZIA President Iris Schöberl also speaks of a "strong signal for housing construction" and particularly welcomes the rapid start of funding before the end of this year. At the same time, the ZIA is calling for the programme to be designed in a technology-neutral and socially acceptable manner in order to ensure sustainable and affordable heat supply. Criticism, however, comes from the Green Party: Lisa Paus and Hanna Steinmüller see the EH-55 subsidy as an "expensive flash in the pan" that allows money to flow into what is already standard practice on the market instead of specifically promoting climate protection, accessibility and non-profit housing construction.

Office and retail rents are developing differently

Current IVD commercial price index

According to the latest IVD Commercial Property Price Index 2025, the office market is becoming increasingly divided: while rents for modern, ESG-compliant space in good locations continue to rise, prices for older properties are stagnating or falling. The only exception is Frankfurt, where rents rose in all segments – simple offices by 10%, medium-sized offices by 8% and high-quality offices by 7%. In other cities such as Düsseldorf and Hamburg, however, rents fell noticeably. The downward trend continued in the retail sector: rents in prime locations fell by 3% nationwide and by 2% in secondary locations. Only top locations with high footfall proved to be somewhat more stable.

News from 5 November 2025

SPD sticks to 65% renewable energy target for heating systems

Despite criticism from parts of the business community

The SPD is staying the course: new heating systems must continue to be powered by at least 65% renewable energy. At the Dena Energy Transition Congress, Federal Environment Minister Carsten Schneider reiterated that although implementation would be made easier, the level of ambition would not be lowered. The aim is to "reach clear decisions quickly" in order to end the current reluctance in the market. Federal Economics Minister Katherina Reiche (CDU) has also recently been more cautious in her criticism – a draft bill is expected in November.

Residential property markets: prices continue to rise slightly

German Real Estate Index (GREIX)

The upward trend in the residential property market continues, albeit at a moderate pace. According to the latest German Real Estate Index (GREIX), prices rose again in the third quarter: flats increased by 1.2% and detached houses by 1.3%. Only multi-family houses saw a slight decline of 0.9%, which is attributed to the low number of sales. Particularly striking is that the number of transactions rose noticeably and is already 14% higher than last year for flats – a sign that buyers and sellers are increasingly adapting to the new market conditions. The increase was particularly pronounced in Düsseldorf (+1.6%) and Leipzig (+1.0%), with Leipzig even reaching a new all-time high. Despite persistently high interest rates, demand for housing remains robust – and most indicators point to a continuation of price increases in the coming quarters.

(News 6.11.2025)

The key points for building type E are available

Can the new building be made cheaper in this way?

With the new building type E, the German government finally wants to make construction easier and cheaper. The key points now presented focus on robust planning, fewer technical specifications and the elimination of extras such as underground car parks, lifts or complex ventilation systems – wherever they are not required by law. This "minimum standard instead of over-compliance" approach is intended to reduce construction costs and speed up project implementation. The industry welcomes the move in principle, but is calling for clear tenancy law rules so that simple designs are not later interpreted as defects. A draft bill is expected before the summer and could become an important building block for more affordable housing.

Politics: Research centre for climate-neutral construction launched

Implementation of coalition agreement

The federal and state governments are serious about sustainable construction: With the new "Federal Research Centre for Climate-Neutral and Resource-Efficient Construction (BFZ)", a nationwide network will be established in 2026 to provide fresh impetus for low-carbon building materials, resource-efficient processes and circular construction methods. The founding states of Saxony, Thuringia and Baden-Württemberg have already signed up together with the Federal Ministry of Construction – now the first project clusters are starting with research institutions, practical partners and local authorities. The locations in Stuttgart, Bautzen and Weimar form the scientific basis and are intended to accelerate the transfer into construction practice. The aim is to achieve a real boost in innovation: less resource consumption, more climate protection – and significantly faster paths from the idea to the construction site.