Real Estate Monitor

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Thorsten Schnieders
Partner at PwC Germany
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Maximilian Pfeffer
Manager at PwC Germany
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The Real Estate Industry

With more than 20 percent of national income before the automotive and engineering industries, the real estate industry is one of the largest economic sectors in Germany. The dynamic business environment opens up new growth opportunities, but also brings with it new challenges and risks. Market participants must ensure that they anticipate developments in the markets at an early stage. Therefore, their success depends to a large extent on valid market information. PwC’s Real Estate Monitor provides quarterly information on key capital market benchmarks that highlight current trends in the real estate industry.

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Real Estate Monitor Q4 2025 (PDF, 0.9 MB) Sign up

Real Estate Monitor, Q4 2025

PwC Real Estate Indices: Cash Flow Quality Defines the New Cycle

By the turn of the year, the PwC indices show that the market is no longer driven by distress, liquidity stress or indiscriminate de-risking. Instead, it has entered a regime where capital is allocated based on income robustness, balance sheet resilience and refinancing capacity.

Residential Sector stands out as the clear beneficiary of this transition. Strong tenant demand, low vacancy and structurally constrained supply in A cities continue to support stable and growing cash flows. As refinancing conditions have stabilized and credit spreads have narrowed, residential platforms are increasingly being valued as long duration income assets rather than as leveraged bond substitutes.

Commercial Real Estate has also stabilized, but at a fundamentally lower confidence level. The commercial index has stopped falling, reflecting the easing of systemic financial stress, yet it has not entered a genuine re-rating phase. Office heavy portfolios in particular remain exposed to re-letting risk, elevated incentives – due to structurally decreased demand – and capital expenditure requirements. As a result, equity markets continue to discount uncertainty in earnings and refinancing, even as enterprise values and operating multiples remain comparatively stable.

At the start of 2026, Germany is selective‑investable, not broadly recovering. The pace and shape of any recovery will be determined by how the market digests refinancing needs, rate dynamics and the broader economy; capital remains highly execution‑ and balance‑sheet‑driven.

German Residential Real Estate Has Entered a Phase of Cyclical Stabilization Backed Up by Cash Flow Fundamentals

• The capital market reset seems to be largely complete. Valuations reflect structurally higher rates while rental income benefits from persistent undersupply and low vacancy. Interest rates in the 3.5–4.0% range are historically average, the market has recalibrated to these levels rather than waiting for financial engineering.
• What we are seeing today is not a fragile rebound, but the emergence of a new equilibrium. Valuation levels now reflect a structurally higher interest rate environment, while rental income remains supported by persistent housing shortages and strong tenant demand.
• The recovery in mortgage origination confirms that households and investors have adapted to the new interest rate level. Financing volumes are rising again, not because credit has become cheap, but because the market has adapted to higher rates.
• Importantly, this stabilization is being driven by cash flow robustness  rather than financial engineering. Rent growth, low vacancy and limited new supply are once again the dominant forces shaping investor expectations. Selective retrofit‑led value creation will likely remain a key driver in 2026, as supply stays constrained and rents underpin total returns.
• As a result, residential real estate has reestablished itself as the most resilient segment of the German property market, attracting capital at a time when many other asset classes remain under structural pressure.

German Commercial Real Estate Remains in a Prolonged Recovery Phase as Capital Constraints Limit Recovery

• In Q4 2025, listed German commercial real estate remained in a consolidation phase rather than a broad-based recovery. Equity pricing has stopped deteriorating materially, but it is still anchored well below prior cycle peaks, signaling that investors continue to apply a fundamentally higher risk discount to commercial cash flows.
• Compared with Q3 2025, the key change is an emerging shift from negative momentum to stabilization. Credit spreads appear range bound rather than tightening decisively, and the index trades sideways. This tells us that the market is no longer pricing an acute shock scenario, but it is also not yet willing to price in a sustained improvement in earnings visibility.
• The charts point to two binding constraints: 1) long-term rates have not moved lower in a way that would mechanically re-rate the sector; 2) the credit risk premium demanded from commercial issuers remains elevated, which keeps refinancing conditions tight and reinforces investor caution. In other words, the cost of capital is no longer rising, but it is still high enough to limit the upside.
• The implication for the way forward is clear. A sustainable recovery in commercial real estate equities will require evidence that operational performance can absorb the higher funding burden. For office heavy portfolios, this means stabilizing vacancy, firmer leasing outcomes, and better clarity on capex requirements. Until those signs emerge, capital will stay selective, favoring assets with resilient tenant demand, shorter execution risk, and credible repositioning pathways.