Thursday, 16 October 2025
Germany’s residential investment market has regained strength after a difficult two years, but its recovery comes amid worsening supply shortages and mounting affordability pressure, according to new research by Colliers and corroborating data from the Federal Statistical Office (Destatis), JLL, and vdp Research.
Transaction volumes climbed to roughly €42.5 billion in 2024, a jump of almost 30% year-on-year, signalling renewed investor confidence in housing as an asset class. Residential properties now account for more than 60% of all real estate transactions nationwide — reaffirming their position as the most active segment of Germany’s property market. Analysts say stabilising yields, strong rental demand, and the relative resilience of residential income streams have brought institutional investors back into the market.
At the same time, construction activity continues to falter. Just over 250,000 new dwellings were completed in 2024, the lowest figure in nearly a decade and a drop of 14% from the previous year. The average time between permit approval and completion has stretched beyond two years, while new building permits have fallen sharply, fuelling forecasts of a housing shortage that could approach one million units by 2030.
The federal government has earmarked €23.5 billion for social housing through 2029, but experts from the Cologne Institute for Economic Research and Deutsche Bank Research warn that the sum will only address part of the growing shortfall. Lower-income tenants are already bearing the brunt of the squeeze, as vacancy levels in affordable housing reach record lows across major cities.
Despite these pressures, rental growth remains strong. In the seven largest metropolitan areas, average rents for existing units have risen by around 4% over the past year to roughly €16.50 per square metre, while new-build apartments are commanding close to €22 per square metre. The rent-to-income ratio in these cities now averages 35%, a level economists describe as “manageable but tightening” for households without dual incomes.
Demographic trends are also shaping the market. Germany is projected to add over one million new households by 2040, with single-person households driving much of the growth. This has boosted demand for micro-living and compact apartments, which now represent more than 40% of urban rental listings in some cities. Developers and institutional investors view the segment as a short-term buffer against the housing deficit, although returns are narrowing as new supply enters the market.
Investment activity is spreading beyond the major hubs, with strong momentum in secondary cities such as Leipzig, Hanover, and Nuremberg. Prime yields in Germany’s largest markets have stabilised around 3.8–4.0%, while those in regional centres remain closer to 4.5%. Analysts say this stability, combined with declining construction volumes, is likely to support modest price appreciation into 2026.
Market experts, however, warn that Germany’s housing imbalance remains structural. Rising land prices, elevated construction costs, and complex planning procedures are preventing the “supply catch-up” policymakers have promised. Even with government stimulus and rent control debates ongoing, most forecasts suggest that meaningful relief will not materialise before the late 2020s.
For now, the market’s resilience reflects both opportunity and strain: investors are returning, but tenants are paying the price of years of underbuilding. Germany’s housing sector may have stabilised financially — yet socially, the pressure is still building.
Source: Colliers Germany
