The recovery that had begun on the German real estate markets was slowed down by the effects of the Iran conflict. If the blockade of the Strait of Hormuz can indeed be ended soon, the brakes will not be released immediately, but the recovery of real estate activity should not be completely slowed down. The hesitant attitude of many users, financiers and investors will continue for the time being, but the market continues to be characterized by an underlying dynamic even under the more difficult circumstances. This is shown by the current market outlook for 2026 of the international real estate consulting firm Avison Young.
Investment markets: More cautious in the wake of rising interest rates
Nicolai Baumann, Country Manager Germany at Avison Young: “The overall economy and user markets provided a slight tailwind for the investment markets at the beginning of the year. But since the end of February, the increased interest rate level alone has required a recalculation of targeted investments and could even make some unprofitable – at least at their current prices.” Jochen Völckers MRICS, Managing Director and Head of Capital Markets Germany at Avison Young, adds: “Higher interest rates across the entire maturity spectrum affect the profitability of investments. This puts pressure on prices, especially of energy- or space-inefficient properties.” Ongoing investment processes were still completed at the originally agreed price levels, but since the interest rate jumps and the renewed increase in uncertainty from the end of February, both interested buyers and potential financiers have been examined more critically. The transaction volume in 2026 as a whole could still reach the previous year’s figure. However, the forecast uncertainty is very high, and depends not least heavily on geopolitical developments.
User markets: Gradual upwards, supporting catch-up effects
The user markets “depend” on the economy as a whole, and the already heightened uncertainty among companies has now increased again. In the meantime, there are even stagflation tendencies, an unfortunate mixture of increased inflation and reduced growth. “This has an impact on investment and employment plans, which in turn influences location and space decisions,” explains Michael Kubik, Head of Office Leasing at Avison Young in Germany, “and should keep the level of lease renewals high in the office markets. Together with reduced space requirements due to hybrid working, this development limits new contracts and expansions.” Nevertheless, office space take-up in 2026 could exceed the previous year’s results in several German real estate strongholds – provided that geopolitical and economic uncertainties are reduced.
“Standstill agreements” on financing are reaching their limits
The share of loans with significantly increased credit risk and NPLs in commercial real estate financing have risen sharply in Germany and are well above the European average. “In times of stricter regulation, discrepancy in price expectations, a lack of equity capital and a pronounced risk-off mode, the rising wave of follow-up financing could lead to the fact that no amicable solutions can be found for some ongoing commitments with ever louder “crunching figures”, warns Christian Ströder, Director Market Intelligence at Avison Young in Germany. Johann Mikhof, Director Leasing & Investment at Avison Young, draws attention to the following situation: “Cosmetic renovations are no longer sufficient in the current market phase. In secondary office locations, classic modernization measures often come to nothing in old buildings. Anyone who wants to stop the decline in value and take the pressure off the balance sheets must radically rethink, whether through courageous repositioning or consistent conversions.”
Framework conditions decisive
The German economy is once again under pressure. It does not end when the Iran conflict is over. “There are a “sufficient” number of other disruptive factors, such as geopolitical factors,” Baumann sums up, and continues: “However, the investment programs and the slowly underway improvements in location conditions will slowly help the economy as a whole to become more resilient and provide it – and ultimately the real estate markets – with more tailwind again.”
