BalkansCat/Depositphotos.com
Multistorey residential buildings in Oberkassel, Düsseldorf
The defining feature of Germany’s real estate market heading into 2026 is not price discovery, but constraint. Financing remains tight, development pipelines are weak, and transactions continue to cluster around assets that can be financed rather than those that merely look attractive on paper. Against that backdrop, the latest outlook from EY Real Estate aligns closely with other research highlighted in this issue of REFIRE, pointing to a market that is functioning again, but only within narrow parameters.
After a brief recovery in 2024, transaction volumes slipped again in 2025 to €32.8bn, down 6% year-on-year. Expectations for 2026 remain finely balanced. Roughly half of market participants expect volumes to rise, while the other half believe that price adjustments have still not gone far enough to reconnect buyers and sellers. The market may move more often, but it is not yet moving freely.
This is not an outlier view. EY’s findings sit squarely alongside other recent analyses covered in this issue of REFIRE, all of which describe a market that has stopped falling but has yet to rediscover momentum. The consistency of these signals is arguably more important than any single data point.
Residential moves from preference to necessity
Residential real estate stands apart. It is the only asset class viewed almost universally positively, with 84% of respondents prioritising it in 2026. Price expectations underline why. Some 76% expect further increases in prime locations, while 50% anticipate rising prices even in secondary locations.
This optimism is not driven by cheaper capital. It reflects scarcity. Survey participants overwhelmingly point to weak construction pipelines and a housing shortage that shows little sign of easing. Political initiatives such as the Bau-Turbo are widely viewed as insufficient to break the logjam in the near term.
“The real estate spring is a long time coming – but new opportunities are being found in a stabilising real estate industry,” says Florian Schwalm, Managing Partner at EY Real Estate and author of the study.
The implications are familiar but increasingly hard to ignore. Residential has moved beyond being the preferred allocation. It has become the default destination for capital seeking durability in a market still short on certainty.
The office sector continues to slide down investment shopping lists. Only 39% of investors still focus on offices at all. Outside prime locations, expectations are blunt: 76% of respondents anticipate falling prices. Even in core locations, stability rather than growth is the prevailing assumption.
The survey confirms what transaction data and lender behaviour have already made clear. Offices are no longer portfolio anchors. They are selective allocations, dependent on location quality, sustainability credentials and tenant strength.
“We can talk about a ‘new normal’ in which residential properties rather than office properties dominate shopping lists,” Schwalm notes.
Binding constraint now lies in financing
Perhaps the most telling shift in the 2026 outlook, however, is not about asset classes but about what no longer dominates the debate. Interest rates, which shaped sentiment throughout 2023 and 2024, have slipped down the hierarchy of concerns. Some 92% of respondents say rate stability provides orientation, but not momentum.
The real pressure point lies in financing. Development finance is described as difficult by 96% of respondents. Follow-up financing is expected to shape market activity in 2026 by 95%. Private debt is set to gain further importance, according to 91% of those surveyed. Banks remain defensive, focused on value adjustments rather than growth lending.
Within commercial real estate, this environment reinforces a clear hierarchy. Logistics properties remain relevant for 57% of investors, followed by food retail at 50%, with price expectations broadly stable. Hotels increasingly split by location quality. Shopping centres remain structurally unpopular. Newer segments such as data centres and life sciences attract interest from around half of respondents, but largely as selective additions rather than core holdings.
When asked about megatrends, 94% of respondents cite demographic developments as the dominant driver shaping the market. Political instability, regulation, digitalisation and artificial intelligence now rank ahead of interest rate movements. ESG and climate themes continue to fade as primary investment drivers, having been absorbed into baseline underwriting rather than headline strategy.
“The real estate industry has adjusted to the new interest rate environment. Market participants are now focusing on fundamental trends such as demographic change,” Schwalm explains.
Geographically, Germany’s top seven cities remain firmly on investors’ radar, cited by 99% of respondents. Yet the survey’s most important conclusion cuts across geography altogether. Type of use now outweighs location as the primary organising principle.
“Residential provides reliability, offices are sought after in sustainable prime locations, and retail is selectively attractive,” Schwalm concludes.
For REFIRE readers, the message is not new, but its repetition across independent studies is increasingly difficult to dismiss. The market is not waiting for a rate cut or a sudden surge in liquidity. It is recalibrating around scarcity, financing constraints and assets that can function today while remaining viable tomorrow.