November 25, 2025
Heading in the Right Direction
Developments of the year and a well-founded outlook: Read our experts’ analyses and forecasts on real estate here.
The 2026 Annual Outlook – Real Estate
- Benedikt Horwedel · Strategy / Macro Research
The prices for residential real estate in Germany are picking up again. Nevertheless, it will take some time before the pre-Covid level is reached. Reasons for this include stagnant population growth and only slowly increasing rents. For 2026, we expect an average price increase of 3% to 4%. One driving factor is the reawakened interest of private households: in the first half of 2025, new mortgage loans were around one-third higher compared to the previous year. The third quarter also showed robust loan demand. For 2026, we expect this encouraging development to continue, albeit at a slightly reduced pace. A swift return to the boom times of the low-interest phase seems unlikely.
An additional boost is currently being experienced in private residential construction projects – not least due to the broadening realization that interest rates are unlikely to decline further in the foreseeable future. We also expect that mortgage interest rates will tend to rise, as they are influenced, among other factors, by the yield levels of German government bonds, which we expect to inch upwards. However, residential real estate is unlikely to regain its former glory anytime soon, as the market continues to be weighed down by weak economic conditions and higher unemployment. How strong the impact of the government's "building turbo" initiative will be remains to be seen. Much depends on how quickly municipalities use the new flexibility and accelerate their approval processes. Overall, the outlook is cautiously positive.
Residential real estate also remains in demand in the commercial real estate market. In the first half of the year, it was the asset class with the highest transaction volume. Investment volumes are picking up again but remain significantly below the long-term average. Office properties, however, remain challenging, particularly in less desirable locations. Transaction volumes remain some 80% below the level that had prevailed when the ECB started hiking rates in 2022. The trend toward higher vacancy rates is likely to continue, as more people retire and hybrid work models remain popular. While new lease rents in the office segment are rising, this is primarily due to individual high-end transactions. Overall, we do not expect significant jumps in transaction volumes in 2026.
Recovery in the private residential real estate market
New private residential mortgage originations in € billion, monthly
Key questions from clients answered by our experts
Do investments in real estate currently make sense?
Germany is still facing a shortage of housing. Hence, rents and prices for residential properties are on the rise again. No one should expect to get rich overnight with real estate. However, a house or apartment can serve as a safeguard against surging rents. In short, those who can manage to finance a residential property and invest are unlikely to regret it in the long run.
Would it be better to obtain long-term or short-term financing for a real estate loan?
Currently, short-term interest rates are once again lower than those of long-term loans. However, the ECB demonstrated in 2022 how quickly it can raise money market rates. Geopolitical tensions also argue in favor of long-term fixed interest rates. In light of the experiences of recent decades, we would prioritize long-term planning security over potential shortterm benefits.
Benedikt Horwedel · Strategy / Macro Research
The 2026 Annual Outlook – eight topics in focus
The 2026 annual outlook – PDF download
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3.3 MB | 25.11.2025
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