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Germany’s housing market remains under intense pressure, with rents rising sharply while purchase prices show only minor movements. The latest data from both the Cologne Institute for Economic Research (IW) and property advisor Cushman & Wakefield highlight a persistent imbalance: tenants are shouldering ever-higher costs, while prospective buyers remain hesitant despite stabilising interest rates and a slight improvement in affordability.
According to the IW Housing Index, new contract rents in Germany’s major cities rose by 4.7% in the fourth quarter of 2024 compared to the previous year. The surge was most pronounced in Berlin, where rents climbed 8.5%, followed by Essen (8.2%) and Frankfurt (8.0%). “Tenants are paying for the shortage,” says IW real estate expert Pekka Sagner. “If it continues like this, living will become a luxury. This must not be allowed to happen.”
The root cause remains unchanged: demand for housing vastly exceeds supply. Construction activity continues to decline, with just 260,000 new apartments completed in 2024. That figure is expected to drop further to 230,000 in 2025, far below what is needed to meet demand. While home purchase prices have largely stabilised, affordability has not improved enough to entice more buyers into the market.
Cushman & Wakefield’s latest analysis suggests that while purchase prices for condominiums fell steadily for 18 months, there are now early signs of recovery. Across the seven largest German cities, median asking prices rose 0.8% year-on-year in the fourth quarter of 2024. Cologne saw a notable 7% increase, whereas prices in Frankfurt (-2.1%) and Stuttgart (-1.6%) continued to slide. “The market has now largely absorbed the interest rate shock, and more transaction processes are being initiated again,” says Jan-Bastian Knod of Cushman & Wakefield.
Affordability remains the problem, for renters and buyers
Despite a slowdown in rent increases compared to 2023, affordability remains a major concern. “The burden on households remains considerable. We expect this to stay high or even increase slightly,” says Nicole Hock of Cushman & Wakefield. Tenants in new-build apartments are spending 35.2% of their net income on rent, while those in existing buildings pay an average of 26.2%. Even in the purchase market, affordability remains tight, with new-build buyers spending 55.3% of their income on financing costs, despite a modest decline from previous peaks.
Meanwhile, institutional investors are beginning to re-engage with the multifamily sector. Cushman & Wakefield reports that transaction volumes in Germany’s top seven cities rose by 10% in 2024 to €7.6 billion. Major deals include the sale of the Konnekt new-build project in Berlin and the partial sale of the Welfengarten development in Munich. Prime yields remain stable at 3.91%, ranging from 3.7% in Munich to 4.0% in Düsseldorf, Cologne, and Stuttgart. “Thanks to the good fundamental data and the positive development of demand on the rental market, more transaction processes are being initiated again,” says Knod.
Looking ahead, rents are likely to continue rising due to chronic undersupply, while purchase prices may edge upward if interest rates remain stable or decline further. IW economists argue that the best path forward lies in stimulating homeownership through incentives and removing regulatory barriers to encourage new development. Until then, Germany’s housing market will remain a difficult landscape for tenants and investors alike.