Colliers residential report: Ongoing rising demand and shrinking supply drive investment activity in Germany

Report analyzes the residential investment market in 52 German cities
Residential investment market is developing most positively compared to other types of use
Household growth fuels housing demand
Slump in residential construction continues: down 14%compared to last year
By 2030, there will be a shortage of 955,000 social housing units
Further rent growth is expected
Rent-to-income ratio rises moderately

Frankfurt am Main, 15 October 2025 – Germany’s residential investment market saw a strong recovery in 2024, reaching €42.5 billion in transaction volume, a 29% y-o-y increase. This growth is driven by high demand for housing, ongoing rising rents, and a limited supply due to a significant decline in new construction activity. Institutional and private investors are increasingly focusing on existing properties, ESG-compliant assets, and portfolios. Continued high transaction activity is expected for 2025/2026, according to Colliers’ latest report “German Residential Market – Facts, Trends & Outlook 2025/2026.”

“Despite the challenging economic environment, the German residential market has noticeably stabilized since 2024. Increased investment activity and attractive pricing levels offer investors a compelling entry point. Rising rents and long-term demand drivers reinforce residential real estate’s status as a reliable asset class,” says Florian Tack, Head of Residential Germany at Colliers.

Housing shortage intensifies

Although immigration has slowed since 2024, Germany is expected to see an increase of 1.02 million households by 2040, representing a 2.4% rise. In the Top-7 cities, household growth is projected at 8.7%. This trend will further intensify housing demand amid a strained supply situation.

The number of completed housing units fell by 14% y-o-y in 2024 to 251,900 – the lowest level in nine years. Of these, only 135,300 were traditional rental units. The average time from permit to completion has extended to 26 months, while building permits declined by 17% y-o-y. Forecasts predict further declines in completions of up to -35% by 2027.

„While the federal government’s ‘Housing Construction Turbo’ signals political intent, we expect tangible effects no sooner than three years from now. Until then, the deficit will continue to grow, particularly affecting low-income households,” explains Francesca Boucard, Head of Market Intelligence & Foresight Germany at Colliers. Current estimates suggest a shortfall of 955,000 social housing units by 2030. The new federal government has allocated €23.5 billion for social housing between 2025 and 2029. “This is a significant stimulus, but likely insufficient to sustainably improve the situation,” Boucard adds. Rather, it serves as a stabilizing measure that may temporarily ease the pressure but does not offer a fundamental solution.

Micro-living with strong potential

Compact housing formats such as micro-living play a compensatory role by temporarily ensuring access to the housing market. In many cities, these units already account for over 40% of the total rental supply. Colliers expects continued growth in this segment, driven primarily by the rising number of single-person households. By 2040, Germany is projected to add approximately 921,000 single-person households, with around 516,000 located in the 50 largest cities. From an investor’s perspective, the segment is attractive due to strong operational performance and a robust development pipeline.

Rents continue to rise, but housing remains largely affordable

As of mid-2025, average rents for existing units in the Top-7 cities rose by 4% y-o-y to €16.45 per square meter, with peak rents increasing by 5% y-o-y to €23.95. In the 50 largest cities, average rents climbed to €11.75 (+5% y-o-y), and peak rents to €18.50 (+7% y-o-y).

In the new-build segment, average rents in the Top-7 cities reached €21.80 per square meter (+4% y-o-y), with peak rents at €29.00 (+4% y-o-y). In the 50 largest cities, average rents rose by 7% y-o-y to €18.30, and peak rents by 5% y-o-y to €26.35.

The rent-to-income ratio increased slightly over the past 12 months to mid-2025, but the pace of growth was slower than in the previous year, supported by a positive trend in household income. As of mid-2025, the rent-to-income ratio stands at approximately 35% in the Top-7 cities, remaining within a financially manageable range for most tenants.

Residential investment market most attractive type of use

Germany’s residential investment market has shown clear signs of recovery since 2024. Historically, annual transaction volumes averaged around €54 billion – nearly matching the entire commercial real estate market. In 2024, the residential segment accounted for 63% of total transaction volume.
The number of transactions in the Top-7 cities rose by 28% y-o-y to 2,924, and by 25% y-o-y to 8,254 in the other 45 cities analyzed. Transaction volumes increased by 39% y-o-y to €9.73 billion in the Top-7 and by 28% y-o-y to €7.89 billion in the remaining cities.

Gross initial yields for existing properties remained stable through mid-2025. Prime yields in the Top-7 cities stand at 3.85%, and at 4.5% outside the Top-7.

Outlook

„Following the price correction of recent years, the market has stabilized at a new level. Initial price increases are already visible in the semi-institutional segment of mixed-use residential and commercial buildings. With stable yields in the institutional sector, we expect prices to continue rising. Residential investments remain a key portfolio component for institutional investors and are gaining importance in a challenging economic environment,” concludes Tack.

You can download the full report here: https://www.colliers.de/residential-investment-en

Media contact:
RUECKERCONSULT GmbH
Sara Singbartl
M +49 151 276 165 63
[email protected]
www.rueckerconsult.de