Interest rate turnaround makes differences between residential investment markets visible again
In the first half of 2026, asking rents in all city categories will continue their upward trend with high momentum. The rise in rents is widespread across all market segments. Against the backdrop of a persistent shortage of supply and continued high demand, the pressure on rental prices remains. The analysis by BNP Paribas Real Estate combines a well-founded classification of the rental housing markets with a differentiated view of the residential investment markets in the A, B and C cities since the interest rate turnaround. It offers institutional investors reliable guidance on the development of the investment and rental markets nationwide and in eleven top cities, supplemented by key market indicators and fact sheets for over 100 cities.
The German rental housing market is again in remarkably robust shape in the first half of 2026. Despite already high rent levels, asking rents in all city categories under consideration have risen noticeably again within just six months. In the Class A cities and the large and medium-sized cities, asking rents in existing buildings have each risen by 3% since the beginning of the year, while university cities show the highest momentum with an increase of 4%. The Class A cities continue to lead the rental price ranking with an average asking rent of €16.25/m², followed by university cities with €12.75/m². It is striking that the rental price dynamics are increasingly shifting to locations outside the major metropolises. University and medium-sized cities in particular are benefiting from high demand for housing, while supply remains scarce in many places due to declining building completions and persistently high construction costs. This trend is particularly evident in the new construction segment.
“It is noteworthy that the strongest rent dynamics can currently be observed mostly outside the classic top locations. Numerous university and medium-sized cities today have similarly stable fundamentals as the metropolises, but in some cases still benefit from lower rent and purchase price levels. For investors, this results in increasingly attractive opportunities beyond the established A-cities,” explains Christoph Meszelinsky, Managing Director and Head of Residential Investment at BNP Paribas Real Estate GmbH.
On average in the seven largest German cities, the median asking rent for new-build apartments is currently €21.35/m², 2% above the level at the beginning of the year. Munich remains the most expensive new-build location with a median new-build rent of €25.90/m². Hamburg continues to rank second at €23.00/m². Stuttgart moves up to third place with €20.80/m², overtaking Berlin, Frankfurt and Düsseldorf in the ranking of the most expensive new-build markets. Outside the top locations, Freiburg im Breisgau (€20.00/m²), Heidelberg (€19.90/m²) and Potsdam (€19.35/m²) are among the most expensive new-build rental housing markets in Germany.
Market quality is priced more strongly again
The interest rate turnaround has permanently changed the German residential investment market. However, the current analysis shows that the market adjustment since the peak in 2021 has varied depending on the city category. While the purchase price factors in A and B cities developed comparatively similarly, the correction in the C cities was much stronger. At the same time, the fundamentals of many housing markets have further strengthened due to rising rents, falling vacancies and a persistent excess demand. The results indicate that the market adjustment of recent years was primarily driven by the capital market and is less due to a deterioration in housing fundamentals.
“It is particularly interesting for investors that the market adjustment since 2021 has been much more differentiated than many expected. While C cities are now valued at higher risk and liquidity premiums, many B cities continue to be remarkably close to A locations. The interest rate turnaround has thus made the differences between the market segments more visible again and noticeably increased the importance of market quality, liquidity and fungibility,” says Christoph Meszelinsky.
Prospects
The structural shortage of supply on the German rental housing markets is likely to persist in the coming years. Although there are increasing signs of a stabilisation in new construction activity, a noticeable increase in the supply of housing is not expected in the short term due to the long development and construction periods. At the same time, demand for housing remains high. Class A cities in particular continue to benefit from population growth and ongoing urbanisation trends. At the same time, however, numerous university, large and medium-sized cities are also showing continued high demand dynamics, so that the excess demand is increasingly affecting a large number of German housing markets. The existing gap in new construction is likely to close only slowly for the time being, so that the excess demand will continue, especially in the tight housing markets. Against this backdrop, rents are expected to continue to rise, with the new construction segment likely to show the strongest momentum due to limited supply and high development costs.
The general conditions also suggest that the German rental housing market will remain highly attractive in the medium to long term. Stable demographic trends, the trend towards smaller households and the often significant price advantages of existing leases compared to new lettings limit fluctuation and maintain excess demand. Fundamental changes in these market mechanisms are not foreseeable at present. At the same time, residential real estate offers a high degree of stability and predictability in view of the continuing increase in geo- and macroeconomic uncertainties. Particularly against the backdrop of significantly higher rent levels in recent years and persistently low vacancy rates, many residential markets now have a robust earnings basis. Thanks to the combination of resilient demand, limited supply and comparatively reliable cash flows, the German rental housing market is therefore likely to continue to be regarded as an attractive asset class in the future.
All detailed information and graphics on the housing market can be found here.
In the district dashboards of BNP Paribas Real Estate you can find out more about the current (rent) price level and the development at district level. Detailed rental and price time series can be found here.
