DZ HYP examines the performance of top locations in new study “Real Estate Market Germany 2026”

• Retail sector stabilises, with prime rents in top locations holding up
• Requirements for office space continue to shift
• Good letting prospects for residential property
   

Earlier today, DZ HYP published its new research report “Real Estate Market Germany 2026”. The report examines developments in the office, retail and residential asset classes in Germany’s seven top locations: Berlin, Cologne, Dusseldorf, Frankfurt/Main, Hamburg, Munich and Stuttgart. It also assesses the fundamental market outlook in times of ground-breaking changes to society, the economy and the environment.

The report describes a real estate market that has stabilised three years after a sharp rise in interest rates, but is now operating within very different parameters. Valuations recovered slightly, especially for multi-family homes. At the same time, investment activity has not yet picked up sustainably. This can be attributed to the weak economy, more attractive capital market yields, a structural decline in demand for space and the necessary – but cost-intensive – decarbonisation of existing properties. The report also indicates increasing differences between and within the various asset classes. Residential property continues to benefit from the clear excess of demand over supply in the top locations. While the asset class offers the most robust prospects, office and retail properties are differentiated more according to location and property quality.

Sabine Barthauer, DZ HYP’s CEO, summarised the results of the report: “The real estate market is currently shaped by structural change. Value development is being driven more and more by letting potential, meaning that location, sustainability and active management are set to take centre stage in future. While residential properties continue to offer good prospects, opportunities are arising in the office and retail sectors, especially where portfolios are being continually adapted to changing user requirements.”

Details of the report results:

Retail: top locations remain comparatively resilient 

The situation for bricks-and-mortar retail remains challenging. Besides continued strong competition from online commerce, consumer restraint and the weak economy are being felt in particular. However, this development also has a positive side, in that the decline in traditional retail space is accelerating the transformation of city centres. Conversions to hotels, bars and restaurants or to office, residential or leisure uses are gaining in importance and may even increase the attractiveness of central locations over the long term.

On a general note, the seven top locations benefit from structural advantages such as high purchasing power, a large catchment area and strong footfall. As well as this, domestic and international retailers are increasingly focusing their space strategies on a smaller number of particularly attractive locations – a trend that has the effect of stabilising the letting prospects in prime locations. Accordingly, rents have stabilised at a high level after having gone down in recent years. Prime rents in the top locations have been stagnating at around €250 per square metre for the past three years or so – a level that is likely to hold throughout 2026.

Office properties: city centre locations drive the market – modern space remains scarce

Office markets continue to be affected by changes in working environments and by economic weakness. Take-up of space remains subdued and vacancy rates have been rising since 2020. Average vacancy rates in the top locations were above 8 per cent at the end of 2025 – this is further evidence of an unusual market pattern where vacancy rates and prime rents are rising at the same time. This is due to a major shift in demand profiles: companies are looking for modern, high-quality and sustainable spaces that promote communication and encourage people to return to the office rather than working at home. It is precisely these spaces that are in short supply, especially in excellent city centre locations. At the same time, higher construction costs have made it significantly more expensive to build new properties and revitalise existing ones. This is another factor pushing up prime rents, which have risen to around €45 per square metre at the top locations in 2025. While rents are expected to continue rising in 2026, the pace seen in recent years is unlikely to continue. The situation is very different in peripheral city centre locations and submarkets, where rents are stagnating as demand for older, less sustainable space is significantly weaker.

Tight housing market drives up rents

The outlook for the residential real estate market remains decidedly positive. Demand in the top locations is clearly exceeding supply, which in turn leads to favourable letting prospects. As before, investors view residential real estate as less of a risk than other segments. Stable demand ensures reliable cash flows and solidifies the status of multi-family homes as a robust asset class. At the same time, the housing issue is becoming more and more of a stress factor for society. Even high-income households are coming under increasing pressure from elevated rent levels at the top locations. Rental growth momentum slowed visibly in 2025 but still remains very high. On average, first-occupancy rents in the top locations were slightly higher than €20 per square metre in 2025, while the rent for re-letting existing flats was just over €15 per square metre. In addition, the spread between existing rents and new lettings is still so high that moving home is becoming an increasingly unattractive option for people, even if their living circumstances change. Considering the financial limitations of private households, rent increases are likely to be more closely linked to income trends in future.