After several challenging years, the German real estate market is undergoing a noticeable phase of stabilisation in 2026. The combination of the aftermath of the coronavirus pandemic, geopolitical uncertainties and a significant rise in interest rates led to considerable reluctance to buy and because of price corrections between 2023 and 2025, buyers have the opportunity to secure properties at reduced prices.
However, there are now many indications that the worst is over. Economic institutes expect slightly positive growth of 1.0% for 2026, which will also revive demand for real estate. At the same time, construction interest rates have stabilised at around 3.5 to 4.5% compared to previous years, providing greater planning security for investors and owners. For investors, this brings both reliability and predictable financing, but also entails more stringent lending standards: banks now require higher equity, conduct tighter credit checks, and increasingly prioritise the property's energy efficiency.
However, the key market drivers have changed fundamentally, energy efficiency, sustainability and ESG compliance have become central to economic activity. With the implementation of the EU Energy Performance of Buildings Directive (EPBD) by May 2026 and stricter requirements under the Building Energy Act (GEG), energy efficiency is becoming a relevant value factor. Buildings with a good energy balance are achieving price premiums of up to 15 to 20%, while unrenovated properties are increasingly suffering from losses in value and rental pressure.
From 1 July 2026, new heating systems in cities with more than 100,000 inhabitants must use at least 65% renewable energies – a requirement that directly influences both technical planning and the ancillary cost clauses in rental agreements. However, the German government has announced that the GEG is to be modified again. A change to the wording of the law is still pending, which is leading to a lack of planning security for market players.
At the same time, structural problems are weighing on the market, especially in residential construction. At around 200,000 units per year, actual new construction is far below the demand of around 400,000 apartments. This supply deficit is driving up prices and rents, while in the commercial sector, quality and location are currently the main factors determining the future viability of a property.
Overall, the office market in Germany has been in decline in recent years. Less capital has flowed into this asset class, and many companies have rented smaller spaces due to changes in office use (remote work, "walking assets" etc.). In addition, market participants have fewer new construction projects in the pipeline. Nevertheless, the market is expected to soon reach its lowest point and begin to recover in the coming years in line with the economic situation in Germany.
From a legal perspective, the new planning law simplifications are particularly relevant. The so-called "Bauturbo Act" allows for temporary deviations from building planning law, which can accelerate conversions – for example, from retail to residential. At the same time, the increased discretion of the authorities grows the risk of conflicts with neighbours' rights. The new "Gewerbe zu Wohnen" (commercial to residential) subsidy programme, which will start in summer 2026, also creates opportunities, but requires careful examination of building planning law, monument protection and parking space requirements.
ESG is also playing an increasingly important role in this asset class. PV roof systems, energy-efficient cooling and lighting technology, and green energy contracts are becoming economically and regulatorily relevant factors for users and owners.
Legally, 2026 is a year of major changes. The rent cap has been extended until 31 December 2029 and violations can be punished with fines of up to €50,000. Landlords must comprehensively document how a new rent is calculated. At the same time, there are political discussions about regulating index-linked rents, for example by capping them or reducing adjustment intervals. The EPBD is also tightening energy requirements with regard to energy performance certificates, renovation passports and the zero-emission standard in new buildings. The heating requirements mentioned above, which will come into force in July 2026, will further increase the pressure to modernise.
However, there are now many indications that the worst is over. Economic institutes expect slightly positive growth of 1.0% for 2026, which will also revive demand for real estate. At the same time, construction interest rates have stabilised at around 3.5 to 4.5% compared to previous years, providing greater planning security for investors and owners. For investors, this brings both reliability and predictable financing, but also entails more stringent lending standards: banks now require higher equity, conduct tighter credit checks, and increasingly prioritise the property's energy efficiency.
However, the key market drivers have changed fundamentally, energy efficiency, sustainability and ESG compliance have become central to economic activity. With the implementation of the EU Energy Performance of Buildings Directive (EPBD) by May 2026 and stricter requirements under the Building Energy Act (GEG), energy efficiency is becoming a relevant value factor. Buildings with a good energy balance are achieving price premiums of up to 15 to 20%, while unrenovated properties are increasingly suffering from losses in value and rental pressure.
From 1 July 2026, new heating systems in cities with more than 100,000 inhabitants must use at least 65% renewable energies – a requirement that directly influences both technical planning and the ancillary cost clauses in rental agreements. However, the German government has announced that the GEG is to be modified again. A change to the wording of the law is still pending, which is leading to a lack of planning security for market players.
At the same time, structural problems are weighing on the market, especially in residential construction. At around 200,000 units per year, actual new construction is far below the demand of around 400,000 apartments. This supply deficit is driving up prices and rents, while in the commercial sector, quality and location are currently the main factors determining the future viability of a property.
Office properties – "flight to quality" and increasing regulation
The office market will remain divided in 2026. While high-quality, modern and ESG-compliant office properties in central locations are seeing stable to rising demand, older buildings and properties in B and C locations are coming under increasing pressure. The "flight to quality" trend is having a significant impact on user and investor behaviour: flexible floor plans, energy-efficient building technology, reliable ESG data and modern, high-equipment standards are becoming decisive criteria for rentability and value development. This is because the legal requirements for office properties are also increasing significantly. Stricter energy performance certificates, renovation passports and CO₂ life cycle analysis are becoming standard. ESG clauses are increasingly becoming mandatory in rental agreements, for example with regard to data transparency, modernisation cooperation, distribution of energy costs or adaptation to CO₂ requirements. This increases the pressure on owners of older buildings to renovate – and the risk that properties without modernisation will become stranded assets.Overall, the office market in Germany has been in decline in recent years. Less capital has flowed into this asset class, and many companies have rented smaller spaces due to changes in office use (remote work, "walking assets" etc.). In addition, market participants have fewer new construction projects in the pipeline. Nevertheless, the market is expected to soon reach its lowest point and begin to recover in the coming years in line with the economic situation in Germany.
Retail property – structural change and opportunities through repurposing
The retail sector remains strongly influenced by e-commerce and changing consumer habits. While high-frequency city centre locations and local shopping centres are performing steadily, simple specialist stores or poorly connected B and C locations are losing their appeal. Mixed-use concepts that intelligently combine retail, residential, office and services are particularly sustainable for the future.From a legal perspective, the new planning law simplifications are particularly relevant. The so-called "Bauturbo Act" allows for temporary deviations from building planning law, which can accelerate conversions – for example, from retail to residential. At the same time, the increased discretion of the authorities grows the risk of conflicts with neighbours' rights. The new "Gewerbe zu Wohnen" (commercial to residential) subsidy programme, which will start in summer 2026, also creates opportunities, but requires careful examination of building planning law, monument protection and parking space requirements.
Logistics and light industrial – stable, in demand and ESG-driven
Logistics remains one of the most robust and attractive asset classes. E-commerce, the optimisation of supply chains and the increasing shift of production to Europe ("nearshoring") will ensure high demand and rent increases in good locations in 2026. Light industrial space in regions close to production facilities will also benefit from stable demand. International trade conflicts could further reinforce this trend.ESG is also playing an increasingly important role in this asset class. PV roof systems, energy-efficient cooling and lighting technology, and green energy contracts are becoming economically and regulatorily relevant factors for users and owners.
Hotels – recovery continues, ESG becomes mandatory
The hotel market will show a clear recovery in 2026. Business travel will stabilise or show a clear upward trend, and tourist demand will remain high. Cities with strong trade fair and convention business will particularly benefit. The operator landscape will become more professional, and operator contracts will increasingly be negotiated on a risk-oriented basis. ESG is also gaining importance in the hotel sector. Operators are increasingly required to disclose energy, water and waste figures and actively support measures. Conversions or repositioning – for example, boutique concepts, long-stay or hybrid models are trending, but also require careful consideration of fire safety, licensing law and, where applicable, monument protection.Residential – supply shortages, price pressure and regulatory intervention
The housing market will remain the most heavily burdened sector in 2026, but it also offers investors good opportunities. The significant imbalance between new construction volume and demand is driving both purchase prices and rents. A cities such as Munich and Berlin are seeing moderate but steady price increases, while B cities such as Leipzig, Dresden and Nuremberg are experiencing growing investor interest due to higher returns. Energy-efficient flats and renovated existing properties are gaining disproportionately in value, while unrenovated old properties are coming under pressure.Legally, 2026 is a year of major changes. The rent cap has been extended until 31 December 2029 and violations can be punished with fines of up to €50,000. Landlords must comprehensively document how a new rent is calculated. At the same time, there are political discussions about regulating index-linked rents, for example by capping them or reducing adjustment intervals. The EPBD is also tightening energy requirements with regard to energy performance certificates, renovation passports and the zero-emission standard in new buildings. The heating requirements mentioned above, which will come into force in July 2026, will further increase the pressure to modernise.
Conclusion
The German property market in 2026 is not a boom market – but it is a market that is stabilising and once again offering reliable conditions. Quality, location and, above all, energy efficiency are now more decisive than ever in determining value and rentability. While the residential and logistics sectors are showing structural strength, the office and retail market remains selective and demands clear strategy, ESG compliance and legally sound contract drafting. The regulatory measures of 2026 place high demands on owners, but also create new opportunities in a market that is likely to develop positively again in the long term.
