Experts: Germany is building too little for real estate prices to drop 0 11

The real estate market in Germany has recovered from the shock by 2026. Mortgage rates have stabilized around 3.5–4%, and new construction has virtually come to a halt. Demand in major cities remains high. At first glance, these are ideal conditions for price growth. According to the Federal Statistical Office, housing prices increased by an average of 3.3% in the third quarter of 2025 compared to the same period last year. This marks the fourth consecutive quarter of positive dynamics after a prolonged period of decline.

However, behind the average figures lies a heterogeneous picture. Experts surveyed by the publication indicate that the recovery does not encompass the entire country. Some regions and types of properties will benefit from the current situation, while others will continue to lose value.

Areas of Real Risk

The main criterion by which experts divide the market is the so-called "Lage" (location), which refers to the category of the property's location. Category C cities have regional significance but do not significantly impact the national economy. Category D cities and towns are primarily oriented towards their immediate surroundings.

Hendrik Richter from the platform Ohne-Makler warns:

"I would be cautious with locations in categories C and D."

For these locations, the investment potential is questionable. If a region has weak economic activity, lacks proper transportation accessibility, and people are more likely to leave than to arrive, a price decline becomes a likely scenario, Richter believes.

Paying for Renovations or Losing Value

The energy condition of a property remains a separate risk factor. Martin Engler, CEO of LBS Immobilien Nordwest, speaks of price declines "only for old buildings that require modernization — as upcoming investments in them are already factored into the price."

Richter specifies: sellers of homes with old heating systems find it significantly harder to attract buyers and are forced to accept discounts. Energy efficiency is becoming one of the key price-determining factors — and this trend will only strengthen in 2026.

Commercial Real Estate on the Periphery Under Pressure

Another category of properties that experts identify as potential losers is commercial real estate outside prime locations. According to Richter, offices in the centers of Hamburg, Berlin, or Frankfurt are still in demand.

However, the situation is fundamentally different on the outskirts of major cities. The reason is the sustained reduction in companies' need for office space due to the shift to remote work. Experts estimate that this process is long-term in nature.

Price Growth in Berlin Exists, but Not for Everyone

Even in the capital, where demand is traditionally high, the picture is heterogeneous. Richter speaks of "uneven price dynamics" in 2024–2025.

According to the platform Ohne-Makler:

the average price per square meter in apartments increased from 5936 to 5961 euros; housing with an area of up to 40 square meters decreased by about 100 euros — to 5952 euros per square meter; house prices in Berlin dropped from 5012 to 4904 euros per square meter.

In Richter's opinion, properties with large living spaces are primarily losing value.

Overall, he expects further price growth in 2026. However, the increase in Berlin, according to his assessment, will be lower than in other major German cities.

Florian Bauer from Bauer Immobilien-Unternehmensgruppe adds: good technical condition of a building allows for "more significant price growth." At the same time, micro-location — the neighborhood and specific street — plays an almost decisive role.

Ten-Year Forecast

In the long term, experts believe that the gap between successful and problematic regions will continue to widen. Germany is building too little while simultaneously tightening requirements for new construction.

Fabian Rausch from Freundeskreis-Gruppe warns:

"The next ten years will still be marked by a housing shortage. Strong cities and sought-after suburbs will continue to grow, while structurally weak regions will stagnate or lose ground."

Richter holds a similar view: housing in good energy condition in categories A and B locations will likely appreciate in the long term. The opposite pattern also applies: poor technical condition combined with an unfavorable location almost guarantees downward pressure on prices.