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The evidence is growing that Germany’s property market is indeed stabilising after two years of price declines, with the latest VdP Property Price Index showing a 1.8% rise in Q4 2024 compared to a year earlier. The increase, based on real-life transaction data from more than 700 banks, was driven largely by multi-family housing, where prices rose by 2.9%. Owner-occupied properties recorded a more modest 1.2% gain.
The index now stands at 178.4 points, confirming that the steep correction seen in 2022 and 2023 has eased. Jens Tolckmitt, CEO of the Association of German Pfandbrief Banks (VdP), described the figures as “remarkable given the economic and geopolitical conditions,” but cautioned against premature optimism. “A dynamic upward trend is still not in sight,” he said. “The market remains fragile, particularly in commercial property.”
Investors are returning to the multi-family housing sector, buoyed by rising rents, which increased by 4.6% year-on-year for new leases. The yield index for rental properties rose by 1.6%, its slowest pace of growth since 2022, but still an indication that capital is moving back into the market. Lower interest rates have helped unlock some financing, and certain institutional investors are stepping back in, drawn by stable rental income and a housing shortage that is unlikely to ease in the near future. “For many, the fundamentals are simply too strong to ignore,” said Tolckmitt. “Housing demand continues to rise, and despite cost pressures, investors see a long-term opportunity in multi-family assets.”
In Germany’s seven largest cities, prices climbed by 2.3%, outpacing the national average. Cologne saw the highest annual increase at 3.8%, while Stuttgart and Düsseldorf lagged with gains of 0.3% and 0.8%, respectively. New rents in the top seven cities followed an upward trend, led by Stuttgart (+4.6%) and Berlin (+4.4%).
Slight rise in office values helps lift commercial property
Commercial property prices rose by 0.5% year-on-year, driven by a 0.7% increase in office values—the first annual rise in that segment since 2022. Retail property prices declined slightly (-0.2% year-on-year) but saw a 0.4% quarterly increase. Office and retail rents continued to edge up, rising 2.7% and 3.0%, respectively.
Despite these small gains, Tolckmitt warned that commercial real estate remains in a precarious position. “The office market is no longer in freefall, but that doesn’t mean we’ve turned a corner,” he said. “Investors are cherry-picking assets, and there are still significant risks tied to weak demand and evolving workplace trends.”
Tolckmitt was sharply critical of the lack of political action on housing. “It is completely incomprehensible that housing policy is playing only a minor role, if any, in the current federal election campaign,” he said. He warned that Germany’s deepening housing shortage was becoming a major political and social risk. “The new government must act decisively and implement clear measures to accelerate residential construction,” he urged.
Significance of real transaction-based data in VdP index
He also emphasised the significance of real transaction-based data in the VdP index. “Unlike speculative estimates, our figures reflect actual financing transactions from over 700 banks, giving an accurate picture of real market dynamics,” Tolckmitt said. “While we see some stabilisation, economic policy must do more to encourage confidence in the sector.”
The government’s latest economic forecast projects a mere 0.3% growth in 2025, following two years of contraction. “Germany is facing a decisive year,” Tolckmitt added. “It must finally succeed in setting tangible economic policy impulses. This would strengthen competitiveness, stimulate growth and positively impact the real estate market.”
While the worst of the downturn may be over, a full recovery remains distant. Developers are still facing regulatory hurdles, and investor confidence is far from robust. Interest rate cuts could help unlock financing, but with construction activity subdued and housing shortages worsening, the outlook remains uncertain.
“Without meaningful policy support, the recovery will be slow, uneven, and could even stall,” Tolckmitt warned. “If the government fails to act, Germany will be dealing with the consequences for years to come.”