The research department of DIP partner Aengevelt Immobilien expects yields for all asset classes to rise slightly again in the course of 2025 due to the interest rate development for government bonds.
Further gradual reductions in key interest rates held out by the ECB due to the further decline in the inflation rate will be counteracted by the sharp increase in borrowing by the federal government (“debt package”), so that Aengevelt expects an average interest rate of 2.8% for ten-year German government bonds in the course of 2025. This means that even if the spread falls, real estate yields will rise slightly – with consequences for the purchase price level.
Due to the recent geopolitical turbulence, the macroeconomic environment for the real estate industry has become much more volatile. The U.S. president is causing ever new geopolitical and global economic disruptions that are shaking conventional thinking in cycles and chart analysis. The Bundestag and Bundesrat have reacted to the changed military doctrine of the USA by passing the financial package for defence and infrastructure, which will massively increase the borrowing of the federal and state governments. The massive increase in public borrowing will increase the yield level of fixed-income bonds, especially since other large European countries such as France, Italy and Spain are also massively increasing their defense spending and financing this to a large extent through loans.
This crowding-out effect counteracts the reduction of the ECB’s key interest rates, which has so far taken several small steps. As is well known, the ECB’s goal is to reduce the inflation rate to 2.0%. As the inflation rate in the euro area fell to 2.2% in March 2025, further reductions in key interest rates are to be expected as a result. For the interest rates of construction loans, however, the interest rates of covered bonds are far more important than the key interest rates of the ECB. The Pfandbrief interest rates are in turn correlated with the interest rates on federal securities.
The agreement between the Union and SPD on the investment package had already been enough to raise yields on ten-year German government bonds by 37 basis points within two days on March 5/6. Even though there has been a slight consolidation since then, the yield on the issue of a 10-year German government bond was quoted at 2.68% on April 2. The 15-year German government bond of March 26 even clearly broke the 3% mark with a yield of 3.08%.
However, the majority of the investments from the defense and infrastructure package will only take place once the coalition negotiations have been concluded and the new federal government is in office. The expected increase in borrowing – also by the federal states, which also benefit from the lifting of the debt brake – will once again act as an interest rate driver.
Returns on real estate investments will increase.
Aengevelt Research, in agreement with numerous international banks and analysts, expects yields on 10-year government bonds to average 2.8% over the course of 2025 – after 2.4% at the end of 2024. As a result, the expected returns on real estate investments, which must have an additional spread to the German government bonds in order to cover risk and management costs, are also increasing. Even if the spread narrows slightly, the consequence is that yields on real estate investments, differentiated by asset class and location, will rise by around 30 basis points over the course of 2025 compared to the 2024 level – with a corresponding impact on the purchase price level.
Since the effects of the investment package will extend over several years, the interest rate level for federal securities is not expected to fall in the medium term. According to market observations by Aengevelt Immobilien, numerous potential sellers of real estate have been reluctant to make overdue adjustments to their book values and purchase price receivables in the past two years, unless they were “forced” to sell due to pressure or emergencies. Similarly, transactional investors have also postponed their deals because they speculated on further falling interest rates for construction loans. In fact, due to the “debt package” that has been adopted, an increase in loan interest rates is now to be expected, which will further increase the pressure on the purchase price level.
The time of waiting is over.
Aengevelt Immobilien recommends that players on both the seller and seller side no longer wait for changes in the overall economic environment in view of the market developments demonstrated. For the reasons analysed, sustained significant reductions in interest rates for government bonds and construction loans are not to be expected in the foreseeable future. On the other hand, real estate players will have to prepare for an even greater volatility in the global economic environment, which will make investments in real estate more interesting again because they offer significantly more stability than listed assets such as equities or fixed-income bonds.
Demand for residential and commercial real estate, on the other hand, will increase in the medium term, especially if the economy picks up speed and receives an additional boost from the defence and infrastructure package. Just a few days ago, Goldman Sachs raised its forecasts for real GDP growth in Germany by 0.5 percentage points to 1.5% in 2026 and by 0.6 percentage points to 2.0% in 2026.
Dr. Wulff Aengevelt, Managing Partner of DIP partner Aengevelt Immobilien, sums up: “The time of waiting on the real estate markets is over. Sellers and buyers alike should be prepared for a slight increase in yields and process their transactions on this basis. Especially in times of growing uncertainty, investments in plausibly declined real estate are once again safe havens, especially since all segments of the real estate market will participate in the expected gradual economic recovery, which will set in regardless of all tariffs, if only because of the massively increasing government ratio and thus expanding demand again.”
Dr. Wulff Aengevelt, Managing Partner of DIP partner Aengevelt Immobilien, sums up: “The time of waiting on the real estate markets is over. Sellers and buyers alike should be prepared for a slight increase in yields and process their transactions on this basis. Especially in times of growing uncertainty, investments in plausibly declined real estate are once again safe havens, especially since all segments of the real estate market will participate in the expected gradual economic recovery, which will set in regardless of all tariffs, if only because of the massively increasing government ratio and thus expanding demand again.”
