In 2025, the German real estate market will be in a phase of remarkable restructuring. The fluctuations that have dominated since 2022 – interest rate shock, valuation pressure and restraint – are increasingly giving way to a calmer, predictable pace. It is not so much the expected interest rate cuts that are shaping the trend, but the arrival at a stable interest rate plateau. It is precisely this stability that creates the prerequisite for market participants to be able to make binding calculations again and for transactions to increase at a low level. It can be measured that this stabilization is not just an emotional state: In the first half of 2025, around 4.5 billion euros flowed into residential real estate investments – and thus more capital into this segment than into any other asset class. Housing thus remains not only the emotional but also the economic centre of the German real estate market.
High demand hits new construction collapse
At the same time, the structural bottleneck in the housing sector is worsening dramatically. According to the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), around 320,000 new housing units are needed every year to even come close to meeting the demand. However, real completions have hardly reached the 290,000 mark for years – and the trend will decline again in 2025. This gap acts like an economic magnifying glass effect: the smaller the new building, the higher the signals in the existing building. In many of Germany’s urban centres – including the swarm and university cities – the persistently high level of immigration is encountering a supply that is not increasing, but becoming scarcer. While project developments are faltering, permits are falling and construction costs are rising, the existing property is gaining in strategic attractiveness: it is available, rented and calculable.
Financing under pressure – quality as a new currency
Even though financing conditions have improved compared to the previous year, the environment remains challenging. Banks are acting more selectively, financing has to be backed up more intensively and investors are analyzing more closely. What used to be only desirable, such as clear user structures, resilient locations and a robust micro-environment, is now the decisive differentiating factor. This market phase shows remarkable dynamism: properties in strong B and established C locations often deliver a better risk-return profile than classic prime locations in Germany’s seven largest cities. This coincides with our daily purchasing practice and with the reality of a market that values substance more than symbolism.
Regulation: complex for international investors, everyday life for connoisseurs
Although the regulatory framework remains complex – keywords: rent control, milieu protection, preservation statutes – it is manageable for experienced market participants. The mechanisms are known, the risks are priced in and, in case of doubt, the expertise decides on the economic viability. For international investors, this landscape is often different. Although cross-border interest will visibly increase again in 2025, there will still be a home advantage for national players in transaction processes. According to Cuchman & Wakefield, domestic buyers continued to dominate residential investment activity in H1 2025, even if their share of the volume declined slightly (from 71% to 67%); in the second quarter, however, international investors were already almost on a par with German buyers at around €0.83 billion.
ESG: from trend to silent foundation
What was considered an overheated leitmotif of the industry just a few years ago has now become a quiet but reliable component of any serious acquisition and portfolio strategy. Energy efficiency, climate risks and insurability play a greater role – not because of political charge, but because they have a measurable impact on operating costs, rent stability and financing conditions. At the same time, the regulatory severity of the EU requirements has decreased, which makes it easier to deal with day-to-day business without reducing the importance of the issues. For professional investors, ESG is no longer a trend, but a sober quality filter that makes risks transparent and secures long-term performance.
The return of the private investor
The development in the private investor segment is particularly remarkable: the private investor is back. The reasons for this are manifold: retirement provision, inflation-protected asset accumulation and confidence in residential real estate as a crisis-proof commodity are ensuring increasing demand. Regions with stable labour markets, good infrastructure and a growing population – benefit particularly from this. This group of buyers is indispensable for overall market stability, as they invest conservatively and countercyclically over the long term, thus forming a counterpoint to institutional investors, who are more strongly influenced by global capital market dynamics.
Stock is the anchor in a market in transition
The German residential real estate market in 2025 is not an exploding market, but one that is consolidating. The structural shortage of supply, the return of private investors and the stable interest rate environment mean that existing residential properties are the most reliable currency in this market. At a time when new construction projects are failing, international investors are hesitating and office properties are under structural pressure, the housing stock remains the viable segment. Stable. Understandable. Demand-driven. And above all, future-proof.
The German residential real estate market in 2025 is not an exploding market, but one that is consolidating.
