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Multi-family housing, Germany
Market confidence is definitely returning to German residential real estate as transaction volumes surge to levels not seen since the property boom, with single-family house sales now 5% above their 2019–2021 peak and condominium purchases up 14% year-on-year.
The sharp increase in market activity, revealed in the latest quarterly data from the Kiel Institute for the World Economy (IfW), the German Economic Institute (IW Köln) and the Association of German Pfandbrief Banks (VdP), suggests buyers and sellers have adjusted to the post-correction pricing environment even as interest rates remain elevated.
“The sharp increase in the number of transactions shows that many market participants seem to have adjusted to current conditions,” says Jonas Zdrzalek, real estate market expert and project leader of the German Real Estate Index at the IfW. “Overall, we are observing a moderate but stable upward movement in property prices.”
The transaction recovery is accompanied by consistent price gains across most segments. The VdP real estate price index, based on financing data from more than 700 German banks including Deutsche Bank and Commerzbank, rose 3.6% year-on-year in the third quarter to 183.7 points. Residential properties led the increase, climbing 3.8% compared with the same quarter in 2024 and 0.8% quarter-on-quarter.
Individual segments show different patterns. Single-family and two-family houses recorded the strongest gains, rising between 3.5% and 4.3% year-on-year depending on methodology, while condominiums increased by roughly 2.6%. Multi-family houses present a more complex picture: the VdP reports a 5.2% annual rise, whereas the Kiel Institute’s GREIX index shows a marginal 0.4% decline. GREIX researchers note that their multi-family data are less reliable due to fewer transactions, while the VdP’s financing data may better capture larger institutional deals.
Despite the recovery, prices remain well below their 2022 peaks. That discount continues to attract institutional buyers seeking inflation-protected income streams. Condominiums sit roughly 10% below their previous highs, single-family houses are down 12%, and multi-family houses remain 25% below peak levels. If current growth rates persist, the Kiel Institute calculates that residential prices would not reach new all-time highs until late 2027.
Regional divergence and a tightening rental market
Leipzig has become the first major German city to surpass its previous price peak, reaching a new all-time high roughly 1% above the mid-2022 boom level. The achievement stands in contrast to other major markets, where prices remain significantly lower despite recent gains. In a quarterly comparison, Düsseldorf led with a 1.6% increase, followed by Leipzig at 1.0% and Stuttgart at 0.6%. Frankfurt stagnated, while Cologne declined by 1.0%. Complete data for Berlin, Hamburg and Munich were not yet available for the third quarter.
The VdP’s analysis of Germany’s top seven cities showed prices rising 4.6% year-on-year on average, with Munich leading at 5.3% and Stuttgart showing the most modest gain at 2.4%. “Real estate prices have been on the rise since spring 2024,” says VdP chief executive Jens Tolckmitt. “The recovery phase in the real estate market is continuing to solidify, driven primarily by residential real estate prices. Market players have come to terms with the new conditions.”
Suburban areas are outperforming urban cores, with the German Economic Institute reporting that single-family and two-family houses in the suburbs of large cities rose 4.4% year-on-year, the strongest increase across all regional categories. The shift suggests households are moving to surrounding areas to buy more affordable homes, supported by relatively stable construction interest rates around 3.6% and rising wages that have improved affordability.
The rental market continues to tighten across most of Germany, with new contract rents rising 3.7–3.8% year-on-year according to both the VdP and IW Köln. Major cities recorded particularly sharp increases, led by Düsseldorf at 5.6%, Cologne at 5.1% and Hamburg at 4.4%. Berlin proved the sole exception, with rents for new lease contracts declining 0.2%, a development the institute described as a short-term compensatory movement following above-average increases after the city’s rent cap failure, rather than a genuine easing of market conditions.
“The property market seems to have settled into a new normal,” says IW economist Pekka Sagner. “This does not mean that the situation has eased: rising prices are a symptom of years of insufficient completions.” The institute calculates that 372,000 apartment units should be built annually to meet demand, but expects only 235,000 completions in 2025.
Forward outlook and investor implications
Demand for housing remains robust despite high financing costs, with most indicators pointing to further price increases in the near term. “Demand for housing is high, and most indicators point to further price increases in the near future, despite the likely continuation of high mortgage rates,” says Zdrzalek. Construction interest rates, currently around 3.6% for ten-year loans, are expected to drift towards 4% over the long term, but the market has adjusted to these higher borrowing costs.
Tolckmitt argues that addressing the housing shortage requires action beyond the federal government’s recently announced construction measures (the so-called "Bau-Turbo") to accelerate planning and approval processes. He advocates for state guarantees covering 80% of real estate loans to enable large-scale new construction, along with reductions in land transfer tax at state level to boost homebuyer demand. “The construction boom recently decided by the federal government is good and welcome, as it helps to speed up the planning and approval processes for new housing construction,” Tolckmitt says. “However, its success depends heavily on local authorities making pragmatic use of the opportunities available.”
REFIRE: The German residential market has reached a new equilibrium following the 2022–2023 correction. Transaction volumes prove market liquidity is largely restored. For institutional investors, the multi-family segment's strength in financed transactions shows continued appetite for yield-generating assets. The structural supply deficit, however, locks in upward pressure on both sales and rental prices for years to come.