Report H1 2026

Residential Report Germany H1 2026

Report Germany H1 2026

Trends and insights of the residential market in Germany

Germany’s population has grown 5% over the past 10 years (2023: 84.7 million). The latest spatial planning forecast (based on the 2022 census) expects population growth to stabilise over the next two decades (2025-2045). Therefore, rent prices are likely to continue their lively growth trajectory against a backdrop of potentially sluggish residential construction activity in the years to come.

Find out more about current (rent) prices in Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart and the price trend at a district level in our new District Dashboards. Click here for detailed rent and price comparisons:

Dashboards

Download

CONTENTS AT A GLANCE

Prologue [»]
Residential investment market Germany
Rental housing market Germany
Market data on major German cities
Factsheets on 109 cities

Overview | Prologue| Residential investment market | Rental housing market | Download

PROLOGUE

The change in interest rate regime in has brought lasting changes to the German residential investment market. Following years of rising multipliers, the rapid increase in financing costs has led investors to reassess their residential investments. At the same time, the fundamentals of many housing markets have remained remarkably robust and have largely continued to follow positive trends. The current market phase is therefore the perfect time to take a look at the resilience that tier-1, tier-2 and tier-3 cities have shown in response to the most significant market downturn in recent years.
From a residential investor perspective, tier-1 cities as well as many tier-2 and tier-3 cities have benefited in recent years from growing populations, a drop in vacancy rates and an increase in demand for housing. At the same time, the decisions of institutional investors continue to be heavily influenced by market size, liquidity and transparency. The change in interest rate regime can therefore be seen as an ideal stress test for a direct comparison of the resilience of different city categories.
Our analysis shows that, although the market correction has affected all city categories since 2021, the intensity of its impact varies. While tier-3 cities particularly tend to be priced with higher risk and liquidity premiums, tier-2 cities continue to show a remarkable similarity to tier-1 locations. The fundamentals of many housing markets have continued to improve as well. We can therefore say that the change in interest rate regime has primarily led to greater differentiation based on market quality, without fundamentally calling into question the attractiveness of German residential investment.

FROM YIELD COMPRESSION TO PRICING

The years 2021/2022 mark one of the most profound market corrections that the German residential investment market has seen since the global financial crisis. Following a long period of falling yields and higher multipliers, the abrupt rise in interest rates that began in 2022 led to a widespread revaluation of residential investments.
There is plenty of market evidence supporting the trend in multipliers in tier-1 cities. However, less attention has been paid to the question of how tier-2 and tier-3 cities have responded to the change in interest rate regime. Despite differences in market size, liquidity levels and investor structures, the performance of multipliers in tier-1 and tier-2 cities has been surprisingly similar since the 2021 peak. Initially, both types of cities only showed a moderate response to changing financing conditions. Multiplier movement was relatively small in 2022 as a result. The market correction did not go into full swing until between 2022 and 2023, triggering a significant drop in multipliers.

WIDENING GAP IN RISK PREMIUMS BETWEEN CITY CATEGORIES

Germany's tier-3 cities experienced a different trend. While the multiplier correction was mostly over in the country's tier-1 and tier-2 cities by 2023, the correction in tier-3 cities got off to a later start and continued into 2024. As a result, the downward trend in tier-3 city multipliers was significantly steeper overall than in tier-1 and tier-2 cities. This suggests that, following the change in interest rate regime, investors began to differentiate more heavily between different market qualities and demand higher risk premiums, particularly in less liquid markets.
While yields in tier-2 cities only differed slightly from those in tier-1 cities over the entire period under review, yield premiums generally tended to move within a narrow range of 0.7 to 1.3 percentage points (pp). The gap between tier-1 and tier-3 cities widened significantly in contrast. Whereas investors were only looking for yield premiums of 1.6 to 1.9 pp in tier-3 cities during 2021 and 2022, this number had risen to 2.6 pp by as early as 2023. This gap has remained unchanged since 2024 at between 3.7 and 4.3 pp. There have been no signs to date of yield levels coming anywhere near those of tier-1 cities.
The change in interest rate regime has therefore not only altered yield levels but also permanently changed the relative valuations in the different city categories.

PRICE ADJUSTMENT ACORSS ALL CITY TIERS

Multipliers in tier-1 and tier-2 cities fell 21% and 23%, respectively, until reaching their interim low in 2023. The correction in the country's tier-3 cities was considerably more severe, however, with multipliers falling 39%, down to 11.9 (2024) from 19.4 (2021). Subsequent performance on the market proved mixed, however. Although multipliers in Germany's tier-2 and tier-3 cities have largely stabilised, multipliers in tier-1 cities have recently seen slight adjustments. Overall, this trend shows that tier-3 markets particularly responded more sensitively to changes in financing conditions than Germany's prime housing markets.
The multiplier trend appears quite similar across tier-1 and tier-2 cities. In terms of market liquidity, however, differences appear to be more pronounced. While tier-1 cities were able to maintain their status as primary liquid investment destinations following the change in interest rate regime, tier-2 and tier-3 cities experienced the steepest drops in transaction volume. The market correction could therefore not only be seen in higher yields but also in noticeably lower market liquidity. Greater transparency, liquidity and the broader investor base characteristic of tier-1 cities emerged as key factors in maintaining stability during the pricing phase.
The change in interest rate regime not only triggered a general reassessment of the residential segment but also led to a greater concentration of investor capital in established core markets. Whereas investors seemed happy to accept higher location and property risks during the low interest rate phase, they have become significantly more selective in the wake of the interest rate turnaround.

OPPOSING TRENDS IN FUNDAMENTALS

While multipliers have dropped significantly since 2021, the fundamentals of many housing markets have moved in the opposite direction. The market corrections of recent years appear to have been primarily driven by capital market forces. The extent to which these trends reflect deteriorating conditions in local housing markets is limited. Overall residential investment conditions have actually continued to improve in many locations and have become structurally more stable from an investor perspective. A drop in completion rates, high construction costs, and ongoing high demand have further exacerbated the housing shortage in many locations. At the same time, rising rents and stable demand have strengthened the return profile of residential investments and are offsetting some of the correction in multipliers.
The differences between the city categories can also be seen in rent prices. Median asking rents for stock units in tier-1 cities were recorded at €16.25/sqm in H1 2026, with tier-2 and tier-3 cities posting €11.10/sqm and €10.60/sqm, respectively. The momentum behind stock rents that we saw between 2021 and 2025, however, is noticeably similar at +22% (in tier-1 cities) and +21% (tier-2/tier-3 cities).
Vacancy rates, on the other hand, have been trending in the opposite direction. Vacancy in tier-1 cities has seen its sharpest decline since 2021 (-42%). Vacancy is also down considerably in tier-2 cities (-30%) and tier-3 cities (-23%), although these figures are somewhat more moderate than tier-1 city trends. High structural demand for housing is no longer nearly as concentrated in the country's major cities areas as a result.
In view of this, the multiplier correction that has been ongoing since 2021 can mainly be attributed to changes in capital market conditions. From an investor perspective, however, housing market fundamentals have become structurally more stable across the board. High demand, low vacancy rates and rising rents suggest that, despite price corrections, the risk-return profile of investments in German residential real estate is becoming increasingly more attractive in many locations.

KEY TAKEAWAYS

The German residential investment market performed well overall in the first half of 2026 with investors pouring roughly €4.4bn (incl. M&A) into residential portfolios with 30 units or more in H1. This activity put results only slightly below previous-year results (‑3%). Although high-volume portfolio deals have only had a limited impact on the market to date, increasing activity in the value-add segment and some initial major deals involving stock portfolios outside tier-1 locations point to a gradual broadening of the market.
The very rapid rise in residential rents continues across the board. Increases of 4% to 6% were recorded for new-builds and stock units in several tier-1 cities in H1 alone. This momentum is becoming increasingly apparent outside Germany's major cities as well. Rents have risen more than 4% in the new-build segment since the start of the year in 41 out of 109 independent cities, with an average increase of 7%. This can particularly be attributed to persistent excess demand, high construction costs and an ongoing shortage in new-build supply.
The change in interest rate regime has led to an extensive reassessment of the residential investment market with an impact on cities of all categories. Multipliers are exhibiting a surprisingly similar trends in the country's tier-1 and tier-2 cities, indicating high stability in the established markets. This trend, however, deviates when it comes to tier-3 cities, where market corrections were delayed and ended up being significantly more pronounced overall. Risk and liquidity premiums, which have gone up noticeably since 2023, illustrate that market size, liquidity and available investor capital are once again playing a greater role in pricing than they did during the low interest rate phase.
Despite the significant correction in multipliers since 2021, the fundamentals of many housing markets have continued to strengthen. Rising rents, a drop in vacancy rates and ongoing excess demand all suggest that the return profile for residential investments has improved across nearly all city categories. The correction in multipliers is therefore mainly the result of a changing interest rate environment. From an investor perspective, the risk-return profile of many housing markets has actually improved since the market peak in 2021.

Download

Would you like to read the entire Residential Report? Please register using our form. We will then send you the entire Residential Report by e-mail.