AtlasComposer/Envato
Energy efficiency is now being priced in by potential buyers
The German residential market is no longer pretending that energy efficiency is an optional feature. According to a detailed hedonic pricing model from Immowelt, apartments with an A+ or A energy rating are now priced 23% higher than equivalent D-rated units, while houses in the lowest category, class H, trade at a 14% discount. For investors, lenders and valuers, this signals a structural repricing of risk across the residential sector—one that is accelerating in both scale and scope.
The price deltas are most pronounced at the top and bottom ends of the energy spectrum. A+ houses sell for 16% more than equivalent D-rated stock. Apartments in poor-performing class H fare slightly better—just 4% below the D-rated average—partly because renovation costs are often pooled in multi-unit structures. Even so, the overarching pattern is clear: high-efficiency properties are commanding premiums, while inefficient assets are already seeing discounted market values, with future capex burdens priced in.
Interest rate volatility and energy costs have reinforced this shift. After the 2022 energy crisis and ECB tightening cycle, A+ to C-rated properties recovered faster in value than their lower-rated counterparts. Prices for these top-rated buildings are still down 5.5% from the 2022 peak. D and E-rated homes have dropped 8.6%, while F to H-rated stock has declined 9.3%, despite a general stabilisation in the residential segment. The market appears to be differentiating with increasing granularity.
Stock of inefficient buildings rising rapidly
This repricing is happening against the backdrop of a sizeable and growing stock of inefficient buildings. According to Immowelt, 36.8% of residential listings in 2024 had an energy rating below class E—up from 28% in 2020. Over half of all houses sold in 2024 had an energy efficiency class below E, while fewer than one in four met class C or better. The renovation backlog is particularly acute outside the urban cores. In Holzminden (Lower Saxony), over 79% of properties for sale fall into the lowest three energy classes. The same applies to over 70% of stock in Pirmasens and Höxter. By contrast, in Schwerin and Rostock, the share of F to H-rated homes was below 10%, due in part to earlier post-reunification refurbishment programmes in the East.
nvestors, lenders and valuers are having to adjust. The Pfandbrief sector has issued caution against excessive blanket discounts. Matthias Fischer of the Association of German Pfandbrief Banks (VdP) warns against what he calls the “discount trap”—the temptation to apply automatic markdowns to low-rated properties without adjusting for asset type, location or local market evidence. Instead, he argues, the existing framework under the BelWertV and Pfandbriefgesetzalready allows for energy-related adjustments through operating costs, rent assumptions, and economic life estimates, without needing to codify new formulaic deductions.
Others are less sanguine. Ron Hess of On-Geo argues that current valuation regulations are outdated and fail to provide a clear basis for monetising stranding risk. He proposes formal deductions starting from class D downward, in order to bring valuation models in line with observable market pricing. Without this, he warns, mortgage lending values will continue to underestimate future risk exposure—particularly once regulatory bans or CO₂ penalties for inefficient buildings begin to materialise.
80% of proptech venture capital earmarked for energy efficiency startups
Alongside regulatory pressure, the capital markets are responding. Energy efficiency now absorbs the lion’s share of real estate innovation capital. According to the 2024 Blackprint PropTech Report, 81% of all PropTech venture capital in Germany last year flowed into energy efficiency startups. A total of €1.018 billion in equity and €2.7 billion in debt funding was raised in this segment, primarily by firms such as Enpal, Zolar and Sunvigo offering photovoltaic, storage and retrofit solutions. Start-ups targeting insulation, heating optimisation and retrofitting now outnumber those focused on planning, transaction or facility management technologies.
This surge in innovation is driven by economic as much as environmental factors. Energy costs remain volatile, and regulations such as the Building Energy Act (GEG) continue to tighten requirements for both landlords and buyers. Institutional investors managing SFDR-compliant portfolios are increasingly excluding F and G-rated buildings unless backed by a renovation plan. In lending, energy class is now factored into risk weighting by several major banks, including limits on LTVs for poorer-rated buildings.
The risk is no longer theoretical. Buildings in the lowest classes face longer marketing periods, weaker tenant demand, and higher refurbishment cost exposure. At the same time, the pool of buyers for G/H stock is shrinking. For institutional buyers, acquisition strategies increasingly revolve around repositioning or avoiding sub-threshold buildings entirely.
What’s emerging is not just a bifurcation between efficient and inefficient buildings—but a granular pricing model that assigns measurable value to each step along the energy ladder. The old rulebook—location, floor space, age—is being rewritten to include energy performance as a core determinant of price and risk.
The debate about valuation standards will continue. But in the market itself, the verdict is already in: energy efficiency is no longer a bonus. It is a financial attribute with quantifiable consequences. For investors holding low-rated stock, the window for repositioning is narrowing—and the cost of delay is rising.