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KAPITALKOMPASS #54: Housing Market in Transition
- service4100
- 15 minutes ago
- 4 min read
Dear readers,
The German housing market is awakening – and simultaneously facing its greatest test in decades. While capital is returning and transactions are picking up, the supply shortage is intensifying: too little new construction, rising rents, and growing social tensions. Colliers' current 2025/26 market report aptly describes this tension as "a new beginning coupled with a red alert."
Recovery with risk
Just two years ago, the mood in the real estate market seemed bleak. High interest rates, rising construction costs, and economic uncertainty had paralyzed the industry. But in 2025, the tide turned: Transaction numbers are rising, capital is flowing back into the market, and prices are stabilizing. "The market has bottomed out," explains Colliers Managing Director Florian Tack. "Institutional investors are using the current price level as an entry opportunity."
In 2024 alone, residential properties worth €42.5 billion changed hands – an increase of almost 30 percent. Modern, energy-efficient existing properties and new buildings compliant with ESG standards are in particularly high demand.
Housing shortage is worsening dramatically
But this positive market dynamic has a downside. New residential construction collapsed in 2024 – the sharpest decline in years. Only 251,900 apartments were completed, a drop of 14 percent. Colliers expects only 205,000 new apartments in 2025, and the number could fall below 170,000 in 2026.
At the same time, the number of households continues to rise. By 2040, Germany will have over one million additional households, with a rise of 8.7 percent in major cities. Many young people and immigrants are particularly drawn to the metropolitan areas. "Supply is shrinking while demand is growing – a dangerous combination," warns market researcher Francesca Boucard.
Rents continue to rise –
No relief in sight
The consequences are already being felt. Rents in the 50 largest cities have risen by up to seven percent within a year. New apartments cost an average of €18.30 per square meter, with prices in Munich and Frankfurt already exceeding €29.
Even existing apartments are seeing an increase – by an average of five percent. The situation is likely to worsen in the coming years, as policymakers are struggling to keep up with countermeasures.
The housing construction turbo –
Hope with a delay
With the so-called "housing construction turbo," the new German government has put together a multi-billion-euro package of measures. Reducing bureaucracy, accelerating permitting processes, and offering tax incentives are intended to revive housing construction. However, according to Colliers, the first effects will not be visible until 2027 at the earliest.
Until then, the deficit will grow: In Germany, almost 760,000 apartments are currently approved but not yet built.
Social housing:
The forgotten market
The shortage hits low-income earners the hardest. The number of social housing units has fallen from 2.9 million in 1990 to just 1 million – a decrease of 66 percent. According to the Pestel Institute, two million social housing units will be needed by 2030. The shortfall: approximately 955,000 units.
Despite government funding commitments of €23.5 billion by 2029, the gap remains enormous. "This isn't a construction boom; at best, it's a drop in the ocean," Colliers commented.
Micro-living is booming –
small, expensive, in demand
While traditional rental apartments remain scarce, one segment is experiencing a real boom: micro-apartments and co-living concepts. They meet the needs of students, expats, and commuters looking for temporary accommodation.
Alternative housing options now account for around 40 percent of the available housing. Rents are high, and occupancy rates exceed 90 percent – making it an attractive market for investors. More than 50,000 new micro-units are planned by 2030.
Looking ahead –
Living space remains a luxury.
The analysts' forecast is clear: housing will remain scarce in Germany, and rents will continue to rise. Only in the second half of the decade could falling interest rates, new subsidy programs, and a growing construction pipeline bring some relief.
But until then, the following applies: Anyone looking for an apartment needs patience – and money. And those who invest can hope for stable returns despite all the uncertainties.
Conclusion
The bottom line is this: the German housing market is caught between recovery and structural bottleneck. Capital is back – but without a noticeable increase in supply, rent pressure, social inequalities, and political backlash are looming. For investors, this means selectively investing in affordable demand and high-quality locations, actively managing project and portfolio risks, and consistently utilizing funding and partnership models. The boom may be back, but without more new construction, homeownership will remain a distant goal for many.
We support you in responsibly seizing opportunities – with clear criteria, a reliable cash flow focus and a strategy that combines profitability and social impact.
With best regards and happy investing,
Your service team
Disclaimer
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Source:
Torsten Leißner
Colliers Residential Market Report: https://www.colliers.de/residential-investment/