REFIRE / Wencory/Envato
“We are entering 2025 with more momentum than we had at the start of 2024,” vdp's Jens Tolckmitt observed
The German real estate market appears to be finding some balance after a turbulent period, according to the latest data from the Association of German Pfandbrief Banks (VdP). The VdP property price index for Q3 2024 showed a quarterly increase of 1.0%, reaching 177.3 points. While prices remain 1.0% lower than the same quarter last year, the upward trend since the start of 2024 suggests a market in flux, moving toward a tentative rebound. However, significant structural and economic challenges remain, and the prospect of robust growth remains a distant goal.
Jens Tolckmitt, Managing Director of the VdP, noted the measured optimism stemming from the recent figures. “The latest developments in real estate prices are encouraging,” he remarked, “but in light of the ongoing geopolitical and economic pressures, it’s far too early to consider this a definitive recovery. What we’re seeing is the potential groundwork for improvement, not its realization.”
Residential prices rising, but housing shortage worsening
Residential real estate continues to be the market's linchpin. Prices increased by 1.1% quarter-on-quarter, led by multi-family housing, which climbed 1.3%. Owner-occupied properties followed with a 0.8% rise. Year-on-year performance highlighted the sector’s resilience, with multi-family homes posting a modest 0.2% increase, though single-family homes and condominiums fell 0.6%. New rental contracts in apartment buildings rose 0.7% over the quarter and an impressive 5.6% annually, with Berlin leading the charge at a 5.4% increase. Despite this, Tolckmitt was quick to highlight the underlying problems: “The housing shortage is worsening. Building permits and completions are falling month after month. Without bold, immediate action, we’re only delaying an inevitable crisis.”
Commercial real estate presents a more uneven picture. Prices fell 4.7% year-on-year, though a 0.7% quarterly uptick marks a potential turning point. Office properties saw a 0.8% quarterly rise, while retail properties edged up 0.3%. Yields in these sectors continue to grow, with offices up 6.9% and retail spaces climbing 8.1% year-on-year. Rising yields partly reflect lower valuations but also present opportunities for value investors seeking higher returns. ESG compliance remains a critical factor in driving interest, as institutional investors increasingly prioritize sustainable assets. However, older, non-compliant stock is struggling to find buyers, with properties requiring significant upgrades to meet modern standards.
Yield growth remains robust in the biggest cities
Across Germany’s major cities, residential property trends were similarly mixed. Frankfurt posted the strongest quarterly growth at 1.6%, followed by Düsseldorf and Munich at 1.5%. Over the year, Berlin and Cologne recorded modest increases, while Munich, Düsseldorf, and Hamburg experienced slight declines. Yield growth remained robust, with Stuttgart leading at 5.4%, followed by Berlin, Munich, and Düsseldorf.
As 2025 approaches, the VdP sees potential for gradual recovery but warns of significant uncertainties. “We are entering 2025 with more momentum than we had at the start of 2024,” Tolckmitt observed, “but the terrain ahead is fraught with challenges.” These include not just economic pressures but also the necessity of adapting to new regulations and shifting market fundamentals.
For investors, the coming year presents a critical juncture. Opportunities abound, particularly in resilient residential assets and ESG-compliant commercial properties. However, navigating this complex environment will demand precision and discipline. As Tolckmitt succinctly put it, “The real test for the market isn’t just stabilization—it’s proving that this stabilization can be the foundation for lasting strength. Investors who align with these emerging trends and adapt to a shifting landscape have the chance to shape a more resilient and innovative real estate market in 2025.”
