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Germany’s residential property market is experiencing significant changes as the drive for energy refurbishment gains momentum. The question on everyone's mind is whether these refurbishments are truly paying off, or are likely to in the future. Here REFIRE takes a look at the key aspects of energy refurbishment, exploring who benefits the most, the support available, and the impact on property prices and rents.
Is it all worthwhile?
Energy-efficient refurbishments are being touted as essential for meeting Germany's climate targets. The WWF Germany highlights that even partial refurbishments, such as roof insulation or window replacement, can lead to substantial savings. A study by Prognos AG, commissioned by WWF Germany, found that refurbishing a single-family home by 2045 could indeed save money in the long term despite the initial capital expenditure.
Viviane Raddatz, Climate Officer at WWF Germany, asserts, "Refurbishments DO pay off financially in the long term, especially for owners of single-family homes." This sentiment is echoed by the German Tenants Association (DMB), with Federal Director Dr. Melanie Weber-Moritz stressing the importance of a socially oriented funding policy to support energy-efficient refurbishments in low-income areas.
Still, the benefits of energy-efficient refurbishments are not evenly distributed. Owners of single-family homes tend to see the most significant financial gains. According to the Prognos study, modernising residential buildings is more cost-efficient in the long term, leading to increased property values and reduced energy costs.
For landlords, refurbishments can mean higher rental income through modernisation levies, although this often comes at a higher cost to tenants. The Öko-Institut’s Dr Sibylle Braungardt, co-author of a study with the DMB, emphasises the need for additional subsidies to make energy-efficient refurbishments socially just and financially viable for lower-income households.
Support and funding available
Several funding mechanisms are in place to support energy-efficient refurbishments. The federal subsidy for efficient buildings (BEG) provides financial aid to property owners. However, the DMB and Öko-Institut argue that more needs to be done to make these subsidies accessible to tenants. A recent report from the German Energy Agency (Dena) highlights the importance of targeted investments in energy-efficient buildings and suggests effective subsidy mechanisms. The report emphasises the need for subsidies that directly benefit low-income households and social housing projects.
Properties with poor energy efficiency ratings are increasingly being sold at significant discounts. According to property portal ImmoScout24, the proportion of properties in the worst energy efficiency class H increased from six to nine percent from 2022 to 2024. These properties are often sold at lower prices due to the high costs associated with their refurbishment. Backing this up, research group Empirica's analysis reveals that the discount for properties with poor energy efficiency has definitely grown. For instance, the discount for detached and semi-detached houses in energy efficiency class G is currently €333 per square metre, up from €196 per square metre in 2022.
Costs involved, and effects on rent and selling prices
The costs of energy refurbishment can be substantial. The German Institute for Economic Research (DIW) estimates that the costs of modernising residential properties range from €600 to €700 per square metre, with €180 to €360 of this dedicated to energy-related improvements. WWF Germany's study shows that full refurbishment is more cost-effective in the long term compared to partial refurbishment. However, the initial investment costs can be overwhelming, particularly for lower-income households.
Energy-efficient refurbishments have a noticeable impact on rents and selling prices. A study by Wüest Partner found that rents for apartments with lower energy efficiency are significantly cheaper. An apartment with the lowest efficiency class H is offered on average €1.47 per square metre cheaper than an A-class apartment. The selling prices of properties also reflect their energy efficiency, with Wüest Partner's analysis indicating that the purchase price for properties drops by around €80 per square metre for each decrease in energy efficiency class. This trend is particularly evident in the price category below €8,000 per square metre.
Timescale
Germany's commitment to becoming climate-neutral by 2045 adds urgency to the refurbishment efforts. Despite this, the current renovation rate is only around 0.7% per year, far below the target of more than 2%. Dominik Barton, CEO of the Barton Group, notes that the era of quick property turnarounds is over, emphasising the need for long-term investment strategies. Einar Skjerven, who manages residential funds for institutional investors at Skjerven Group in Berlin, points out that while the current "hype" around energy performance has momentarily diminished, it will likely regain importance as the market stabilises. He believes that "any standard of apartment can currently be rented out", but warns that increasingly "the lending banks are already looking at the energy performance certificate." And investors, too, are very conscious of ESG issues.
Clear trend emerging
Germany’s push for energy-efficient refurbishment presents both challenges and opportunities. While the financial benefits for property owners are clear, the burden on tenants and the high initial costs remain significant hurdles. The market is witnessing a clear trend: properties with poor energy efficiency are sold at discounts, while energy-efficient homes command higher prices and rents. As Roman Heidrich from JLL Germany puts it, "The sharp rise in energy prices in 2022 has made energy efficiency in buildings even more relevant for investors." With the right support and investment strategies, energy refurbishments can indeed pay off, contributing to a more sustainable and financially viable property market.
As we consider all this, it becomes evident that energy refurbishment in Germany is not just about ticking off climate targets. It's about making a sound investment that pays off in the long run. Whether it's the improved property value, the reduced energy costs, or the increased rental income, the potential benefits are substantial. Yet, for these refurbishments to truly be worth it, a balanced approach that considers both economic and social factors is essential. Large parts of a sceptical public still need to be convinced that we’re even close to achieving that balance.
