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The political logic is seductive. Germany's seven largest cities have more than 8.3 million square metres of vacant office space. Those same cities have an acute and worsening housing shortage. From 1st July 2026, investors can apply for grants of up to €30,000 per unit to convert vacant commercial properties into residential apartments, backed by a budget of €300 million for 2026 alone under the new "Gewerbe zu Wohnen" programme. "Vacancies in times of housing shortages are an absolute no-go," Federal Building Minister Verena Hubertz told the mass-market Bild Zeitung. While the name makes it sound straightforward, the market knows it is anything but.
The theoretical potential is real enough. The ifo-Institute estimates that up to 60,000 apartments could be created in Germany's seven largest cities if technically feasible vacant office space were converted. Drees & Sommer puts the national potential at around 152,000 units. Munich's incoming mayor Dominik Krause, who made conversion a centrepiece of his election campaign, cites 1.8 million square metres of vacant office space in the Bavarian capital alone, with the potential for at least 10,000 apartments. Several projects are already in the pipeline, including the conversion of four of Munich's iconic Ten Towers on Leuchtenbergring, where planning approval has been granted for more than 400 units.
Frankfurt offers the most instructive precedent. It is the most advanced of Germany's major cities for office-to-residential conversion, having processed around 10,000 such conversions between 2015 and the end of 2024. But that headline figure conceals a telling trajectory. Annual conversions peaked at nearly 2,000 in 2018 and had fallen to just 630 by 2024. The culprit is not lack of ambition. It is rising construction and financing costs making the economics progressively harder to justify.
Where the logic breaks down
The buildings are not interchangeable. Offices are designed for density, flexibility and commercial function. Apartments require natural light, livable floor plans, plumbing infrastructure, acoustic separation and access to schools, public transport and community amenities. The gap is often bridgeable, but rarely cheaply, rarely quickly, and not always in the locations where housing demand is most acute.
The dividing line is structural. Buildings constructed from the mid-1980s onwards, with sufficient ceiling heights and flexible concrete frames, are generally more adaptable. Earlier stock, particularly from the 1960s and 1970s, often brings contamination risks, outdated construction methods and costly interventions. As Munich-based architect Rudolf Hierl notes, much of the stock now under discussion can in principle be repurposed, but doing so is technically demanding and rarely straightforward.
The economics are equally restrictive. While conversion can appear cheaper on paper, in practice it often converges with new-build costs once structural work, compliance and delays are priced in. Investors typically lose usable floor space, face VAT disadvantages and must manage refurbishment risks that are harder to price than new construction. The subsidy requirement itself underlines the point: without support, many projects do not meet return thresholds.
Iris Dilger, Managing Director of Die Wohnkompanie Rhein-Main, identified the owner-side constraint at a recent Frankfurt real estate conference. Office buildings that can no longer be commercially let remain on balance sheets at inflated values. "This would make a conversion to residential use too expensive, because we have to factor in the costs of rebuilding from the shell stage," she said. That valuation gap between book value and achievable conversion economics remains one of the market’s most persistent obstacles.
The issue, in short, is not the availability of space, but whether that space can be converted into housing at a cost the market can sustain.
A selective tool, not a structural solution
The new subsidy programme has further limitations that practitioners have been quick to identify. The cap of €300,000 per applicant, effectively limiting projects to around ten apartments under the funding rules, makes it largely unsuitable for large-scale conversions. The programme was originally promised in 2023, postponed twice, and has arrived three years late.
There is also the location paradox. The offices most likely to be technically and economically convertible are in peripheral, tenant-weak locations that are also the least attractive for residential use. The offices in central, well-connected locations that would make the most desirable apartments are frequently still commercially viable. Where conversion does succeed, the output tends to be upmarket owner-occupied apartments or micro-living formats, where higher rents per square metre make the numbers viable. Neither delivers the affordable family housing the programme promises. "Rents for new-builds of almost €21 per square metre are no longer affordable for many people," observed Marco Högl, Head of Residential Capital Markets Frankfurt at Savills.
Jacopo Mingazzini, CEO of The Grounds Real Estate Development AG, welcomed the programme while placing it in context: "Targeted support for the conversion of office space into housing is an important and necessary step. Nevertheless, subsidising individual measures does not solve our fundamental problem, namely the overregulation of the housing market." That tension between a well-intentioned subsidy and the structural conditions constraining its impact is the honest conclusion the market has reached.
For Germany's secondary office market, the broader implication is sobering. Assets that cannot attract tenants and cannot be economically converted face a narrowing range of options. Conversion is a genuine but selective recycling strategy for obsolete real estate, not a supply-side solution to the housing shortage. The €300 million programme will create some apartments in some places. Closing the gap that Berlin, Munich, Frankfurt and Hamburg have been accumulating for a decade would require a different order of intervention entirely.