Saturday, 15 March 2025
The Empira Group has released its latest research report, “Economy & Real Estate – Quarterly View 2025 / Q1”, analyzing economic trends and real estate market developments across the DACH region. Despite continued economic uncertainty, property markets are showing early signs of stabilization, with excess demand driving rental growth in key urban areas.
Property Market Stabilization and Rising Rents
While the broader economy remains under pressure, Germany’s residential property market is displaying mixed trends. Frankfurt am Main recorded a 3.2% increase in residential property prices, whereas Düsseldorf saw a 2.9% decline in Q3 2024 compared to the previous year. However, rental prices continue to climb, particularly in Frankfurt (+7.9%), fueled by strong demand and a persistent shortage of new construction.
Investment in residential portfolios has also rebounded, reaching €9.3 billion in 2024, marking a 78% increase from 2023, though still below the long-term average. “The market is adapting. Rising rents and stabilizing prices are opening new opportunities for investors, yet new construction remains a challenge. Growing demand against limited supply will drive rental growth in the coming years,” said Lahcen Knapp, Chairman of the Board of Directors at Empira Group.
Declining Construction Activity Worsens Supply Shortage
Despite the increasing need for housing, new construction activity remains at historically low levels. Germany saw a 22% drop in building permits in 2024, while Austria expects only 24,300 residential completions in 2025, a significant drop from 43,410 in 2023. In Switzerland, vacancy rates have continued to fall, and construction approvals have hit an all-time low.
This supply shortage is intensifying rental market pressures, particularly in high-demand metropolitan areas, where rising rental costs are expected to persist.
Interest Rate Cuts Could Revive Investment Activity
A turnaround in interest rates could serve as a catalyst for renewed market activity. The European Central Bank (ECB) initiated its first rate cuts in late 2024, lowering the key interest rate to 2.75%, with further reductions expected in 2025. The U.S. Federal Reserve also lowered its rate to 4.5%, though future cuts remain uncertain due to new government policies. Meanwhile, Switzerland’s key interest rate now stands at 0.5%, with a stable Swiss franc supporting exports.
Falling financing costs could reignite investor interest in the real estate sector, encouraging institutional capital to re-enter the market.
Investment Outlook: New Opportunities Amid Market Adjustments
Despite ongoing economic volatility, rental markets with high excess demand and real estate debt investments are emerging as attractive opportunities. Investors who adopt a selective investment strategy stand to benefit from the current market adjustment, balancing risk with the potential for strong returns.
“Investors benefit from a market correction that presents both opportunities and challenges. A carefully chosen investment strategy remains crucial to optimizing positioning in this evolving landscape,” Knapp concluded.
With rising rents, low construction levels, and falling interest rates, the property market is poised for a gradual recovery, creating renewed opportunities for institutional investors looking to capitalize on the evolving landscape.
You can download the full study “Empira Group Research: Economy & Real Estate – Quarterly View 2025 / Q1” on the below link:
