EXPO REAL 2026: our take on German real estate

As the property industry prepares to meet in Munich for EXPO REAL, Germany’s real estate market presents a mixed picture. Developers remain under considerable pressure, investors are cautious, and political uncertainty has returned to the spotlight. Yet the economic outlook is improving, while several years of subdued construction are creating conditions for future shortages.

Our view is that these developments need to be considered together. The difficulties of delivering new projects today are strengthening the longer-term case for assets that meet occupiers’ needs. Urban housing, high-quality offices, logistics and industrial assets serving the defence sector and data centres stand out, although each requires a different investment approach.

Developers remain under pressure

The development crisis may have further to run. Renewed interest rate increases, following the ECB’s return to rate rises in June, add pressure to projects already affected by high construction costs, delays and uncertain exit values. Continuing economic and geopolitical uncertainty makes lenders, buyers and prospective tenants more cautious.

For developers, time remains expensive. Delayed sales and lettings extend financing periods, absorb liquidity and can undermine business plans that initially appeared viable. A project may have sound long-term fundamentals while its developer lacks the resources to reach completion.

We therefore see a material risk of further insolvencies in the development sector. For investors considering unfinished projects, the purchase price is only part of the assessment. Remaining construction costs, financing availability, contractor arrangements and a realistic route to completion will determine whether an apparent opportunity can deliver.

Existing owners continue to wait

Owners of income-producing properties often have greater flexibility. Where rental income supports debt servicing and refinancing remains available, many continue to hold assets and wait for better market conditions. This helps explain why pressure on valuations has not translated into a market-wide wave of distressed disposals.

Open-ended property funds face a different constraint. Redemption requests create liquidity needs that cannot be deferred indefinitely, prompting asset sales even where managers would otherwise prefer to hold. Recent reporting on substantial withdrawals and disposals underlines the growing pressure on this segment.

Our assessment remains that widespread fire sales are not the defining feature of the German market. Nevertheless, liquidity-driven transactions are becoming more relevant. The crisis remains particularly acute for developers, but investors should also watch where financing deadlines or fund outflows begin to reduce existing owners’ room for manoeuvre.

Political uncertainty needs perspective

Berlin’s recent election has given renewed momentum to proposals to bring large privately owned residential portfolios into public ownership. For investors, the debate adds uncertainty over the future treatment of residential investment, even before any legislation is enacted.

The federal governing coalition has, however, announced plans for legislation intended to prevent individual federal states from implementing such measures. We consider federal intervention likely. Its precise scope, timing and constitutional durability remain open, so the proposed restriction should not yet be treated as a settled legal safeguard.

The practical challenge is to assess political risk without losing sight of local market fundamentals. Germany’s residential markets differ substantially, and the regulatory position of an existing portfolio may be quite different from that of a newly completed development.

Recovery will meet a reduced supply pipeline

There are encouraging signs in the wider economy. Leading research institutions have upgraded their growth expectations, with the ifo Institute’s autumn forecast pointing to continued recovery through 2027. Public investment and improving external demand are providing support, although energy costs and geopolitical risks remain significant constraints.

For property investors, the timing matters. Economic demand can recover more quickly than construction activity. Projects postponed or abandoned in recent years cannot be replaced immediately, even when financing conditions and confidence improve.

Housing completions fell sharply in 2025. Although building permits have begun to recover, permissions take time to become completed homes. In our view, this gap will continue to support demand for suitable existing buildings and deliverable new projects.

Against this background, three themes deserve particular attention.

Urban housing demand remains persistent

The need for housing in Germany’s major urban areas has not disappeared during the investment downturn. Constrained supply continues to support the case for residential investment where employment, infrastructure and household demand underpin the location.

New construction also benefits from an important regulatory distinction. Homes first used and let after 1 October 2014 are generally exempt from the rent brake governing rents at the start of a tenancy. Other tenancy protections continue to apply, but this exemption provides materially greater flexibility in setting initial rents than is available for much older stock.

That flexibility does not make every development viable. Construction costs and households’ ability to pay remain decisive. It does, however, strengthen the case for well-designed housing in locations with enduring demand.

Quality offices face a different supply equation

The office market requires a similarly selective approach. Rising overall vacancy can coexist with a shortage of modern, efficient space in attractive locations. Current market research continues to identify this divergence, alongside limited new supply and resilient prime rents.

If economic recovery translates into renewed hiring and expansion, demand for quality offices could strengthen while the development pipeline remains constrained. Employers seeking accessible, attractive workplaces may find that relatively few buildings meet their requirements.

We therefore see opportunities in offices with a credible long-term occupier proposition, including suitable refurbishment projects. Location, energy performance, adaptability and the cost of necessary works will matter more than broad assumptions about the office sector.

Data centres depend on deliverable power

Data centres are essential infrastructure for the expansion of cloud services and artificial intelligence. Germany’s investment opportunity is substantial, but electricity availability increasingly determines which projects can proceed. Industry research identifies grid capacity, energy availability and timely connections as central constraints.

For investors, a promising site needs a credible power solution. The capacity available, connection timetable, supply reliability and cost must align with the proposed facility and its customers’ requirements. Planning, cooling and connectivity remain important, but access to sufficient electricity belongs at the beginning of the investment assessment.

Across these sectors, we see reasons for selective confidence. Investors able to manage delivery risks and identify assets suited to future demand can position themselves while the broader market remains cautious.

Our real estate team will be at EXPO REAL in Munich. We would be delighted to meet investors, developers and partners to discuss the market, exchange perspectives and explore the opportunities ahead.