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Refocus on renovating existing stock
Germany’s real estate sector has registered its most pronounced mood shift since 2022, with the ZIA-IW Real Estate Sentiment Index (ISI) climbing sharply in the second quarter of 2025. The composite index rose by 8.9 points to 25.2, fuelled by improved assessments of both current conditions and future expectations across nearly all asset classes. But industry leaders remain cautious, warning that sentiment may be running ahead of fundamentals.
“The mood is finally brightening – but many project developers are still on hold,” said ZIA President Iris Schöberl. “Positive expectations alone are not enough: without falling financing and construction costs, profitability remains a pipe dream.” The current business situation rose by 10.5 points to 21.6, while expectations for the coming 12 months improved by 7.2 points to 28.9. Despite the upward move, Schöberl noted the continued need for regulatory and financial reform: “Anyone talking about an upturn must also talk about reforms in regulations, approvals and interest rates.”
Project developers posted the strongest rebound. Business sentiment jumped by 31 points to +17.0—its first return to positive territory since 2022—while expectations climbed 16 points to 41.5. The real estate climate for this segment rose by 24 points to 28.9. According to the Cologne Institute for Economic Research’s (IW Cologne) Dr Ralph Henger, the uplift reflects a stabilisation in financing and construction costs, alongside improved pre-sales and a tentative return of demand. Still, ZIA’s leadership remains clear: the consolidation phase may be easing, but structural constraints have not disappeared.
The office segment also staged a marked recovery. The current situation improved by 21.6 points to 33.3, while expectations rebounded from zero to 25.4. The combined climate indicator reached 29.3 points. Analysts attribute the turnaround to stable leasing demand, a slight increase in transactions, and political signals in favour of growth-oriented policy. Whether the momentum holds remains to be seen, but the office sector is no longer dragging down the composite index.
In residential, the picture was mixed. The index registered a strong current reading of 34.0 points, but with conflicting survey inputs - depending on the data source - obscuring the short-term trend in expectations. Most observers agree that high demand and resilient rental growth are keeping sentiment afloat. However, persistently high construction costs and sluggish approval processes are restraining new supply. Still, the residential climate reached 30.3 points—its highest level since 2019—underlining its continued role as the sector’s stabiliser.
Capital shift to modernisation over new-build
One of the most telling shifts came in investment intentions. A special question in the ISI survey revealed that institutional capital is refocusing on the existing stock. Around 51% of companies said they would increase spending on modernisation of existing properties in 2025, while 44% intend to buy more standing assets. Only 35% expect to invest more in new development, and just 23% plan to raise investment in land. These figures point to a market favouring ESG upgrades and capital preservation over ground-up risk.
Even in this improved climate, caution remains the dominant undercurrent. As Dr Henger noted, “The results of the survey show a noticeable return of optimism and willingness to invest”—but it is a qualified optimism, underpinned more by stabilisation than genuine acceleration. Financing conditions remain fragile, and political delivery on promised reforms is still pending.
In summary, the Q2 ZIA-IW survey captures a sentiment turning point—but not yet a market one. Whether expectations harden into activity will depend less on psychology and more on rates, regulation, and execution.