Dmitry_Rukhlenko/Envato
Munich, Germany
At this year’s Expo REAL in Munich, the dominant theme was uncertainty—a market weighed down by financing constraints, regulatory challenges, and a tough economic backdrop. And that was before Volkswagen announced its bad news.
While certain sectors show resilience, REFIRE could not ignore the pervasive sense of caution, with a range of players across Germany’s real estate market caught in a “hope-and-hardship” scenario. Industry veterans spoke openly of balancing on a knife’s edge, striving for optimism even as the ground underfoot remains shaky.
And yet. Many experienced ‘old hands’, particularly in the office sector, appeared remarkably sanguine. They’ve known for years that the wheels of change grind slowly in Germany, and in most instances, rents will be paid next year, just as they were this year and in the many years before. It is true the swashbuckling days are over, and there’s much work ahead in maintaining and upgrading existing holdings. But the assets remain valuable and in demand—at the right price. Not everyone entered the business with an over-aggressive approach to either assets or financing. Germany still remains a European powerhouse, even if it’s not currently shining as brightly as before.
However, things have become more difficult. Residential real estate, traditionally a dependable German asset, is now both hopeful and frustrating. Berlin Hyp’s recent Trendbarometer shows a third of market experts are wary of Germany’s attractiveness, with confidence sharply down since 2021. Yet, with stabilising interest rates, renewed investor interest is evident as transactions creep upward, spurred by Germany’s housing shortage and rising rents.
Still, those in the industry know too well that optimism comes at a steep price. High construction costs, inflexible government requirements, and chronically slow permitting have reduced the residential sector to a risky gamble. “Demand might be high, but the hurdles are higher,” said one industry insider, summing up a sense of exasperation that many at Expo REAL shared privately.
Meanwhile, logistics real estate appears comparatively buoyant. The deglobalisation of supply chains has sent companies scrambling for storage and production space within German borders, buoying the logistics sector’s prospects even in this tough climate. A quarter of those surveyed by Berlin Hyp see logistics as a rare bright spot, but it’s not without its own constraints—development costs are rising here too, and suitable land for these developments is increasingly scarce.
The office sector, once a bedrock, has been hit hard by changing work patterns and weak demand, with vacancies ballooning. Forecasts are grim: a 12% demand decline for office space is anticipated across Germany’s 'Big Seven' cities. Remote work is here to stay, and the industry has yet to find a compelling reason for employees to flock back to urban office towers.
Berlin Hyp’s survey reveals that only the top-end office spaces—those offering premium amenities and energy efficiency—have any chance of attracting tenants at competitive rates. Fifty-four percent of respondents are banking on quality upgrades to reignite interest in office spaces, while others are bracing for a protracted downturn. The subtext at Expo REAL was clear: if the German economy doesn’t recover soon, the office sector might be looking at a long and painful reset.
The challenges go beyond sectoral issues. Economically, Germany’s real estate market faces significant headwinds, not least because of tightening financing conditions (see several related articles in this issue of REFIRE). The BF Quarterly Barometer, another critical gauge of the market’s financing sentiment, rose incrementally for the fourth quarter running—but financiers remain skittish. Roughly 72% of respondents see financing conditions as more restrictive than ever. The sluggish deal flow, coupled with exorbitant construction costs, has left many developers in a holding pattern. The irony is hard to ignore: as rates stabilise, lending remains elusive, leaving the real estate sector in a frustrating Catch-22 situation.
Further ECB rate cuts may help ease this deadlock, yet even these may be too little, too late. With each drop in the ZEW Indicator of Economic Sentiment—down 15.6 points in September—faith in a German economic revival dwindles. Achim Wambach, President of the ZEW Institute, remarked bluntly: “The hope for a swift improvement is visibly fading.” As Germany’s industrial backbone remains stalled, industry players are coming to terms with a stark reality: there may be no easy recovery here.
Beyond market mechanics lies a deeper, more volatile issue—affordability. The German residential rental market, traditionally a pathway to middle-class security, is teetering on the edge of a full-blown crisis. Rents in Germany’s largest cities have shot up, while stagnant wages mean that many households—those who once aspired to own homes—now find even renting to be financially unsustainable. Jens Tolckmitt of the VdP (Association of Pfandbrief-issuing Banks) captured this pressure at a recent forum, noting, “Germany’s rental market was once the foundation of social mobility; now it’s becoming a trap.”
This affordability squeeze carries socio-political implications, as fewer Germans are able to achieve homeownership, and rent costs continue to spiral. There is palpable frustration among those affected, and Tolckmitt cautioned that the situation could feed extremism if not addressed. Politicians have scrambled to introduce packages to counter this trend, yet experts warn that these measures will fall short unless Germany confronts its underlying housing policy contradictions: between affordability and the stringent sustainability mandates embedded in recent regulation.
Expo REAL confirmed that Germany’s real estate market is at a turning point. Despite challenges, there are reasons for optimism. The resilience of residential and logistics sectors and the industry’s commitment to adapt show belief in long-term strength. With further rate adjustments and more pragmatic policies, the industry has the potential to emerge stronger, if leaner.
We at REFIRE have watched Germany weather storms before, and while the challenges today are unique, the fundamentals remain. For those willing to embrace a more calculated, quality-focused approach, the opportunities are still there—perhaps not with the same daring flourish as in years past, but with the steady conviction that comes from knowing the market’s strengths. The key now is patience and positioning, as Germany’s real estate players gear up to face what could be a long but ultimately rewarding journey to recovery.
