THE NEW EQUILIBRIUM
The real estate market is adjusting to a new reality
The German real estate market is increasingly adapting to a new reality: higher interest rates and higher yield expectations—yet renewed market activity.
Interest rates continue to set the pace
Following the rate hike in June, the ECB is maintaining the deposit rate at 2.25 percent. Meanwhile, yields on ten-year federal bonds briefly reached around 3.3 percent in August—their highest level since 2011.
Consequently, real estate financing with ten-year fixed interest rates remains well above the levels seen during the years of zero interest rates. A rapid return to historically low financing costs is not in sight.
Inflation limits the scope for action
Germany’s inflation rate rose to 2.8 percent in July, up from 2.3 percent in June. Energy prices were once again a key driver, rising 8.3 percent year-on-year. Core inflation stood at 2.4 percent.
This limits the room for maneuver regarding short-term interest rate cuts.
Real estate market stabilizing
Following the significant price correction seen since 2022, the residential real estate market appears to be bottoming out. Prices are stabilizing, while transaction activity is picking up again.
The market is no longer waiting for a return to zero interest rates. Buyers and sellers are beginning to adjust to a permanently higher interest rate environment.
New construction remains scarce
High construction, financing, and land costs continue to make the economic realization of new projects difficult. Structural housing shortages remain a key market factor, particularly in Berlin.
Our conclusion
For investors, the focus is shifting back to classic fundamentals: purchase price, sustainable cash flow, development potential, and robust financing.
We continue to see opportunities, particularly within Berlin’s existing housing stock—especially where purchase prices have already adjusted to the new financing environment and the properties offer additional development potential.
Delano Kyles · CEO & Managing Partner