According to experts, the number of new buildings this year is expected to be ten percent lower than last year's weak figure. The growing number of one- and two-person houses increases the housing problem.
Munich. The housing shortage in Germany could become even greater in the coming years. “The gap between supply and demand is only now opening,” says Felix von Saucken. According to the head of the real estate consultant Colliers Germany, even those with good earnings can no longer find an apartment in metropolitan areas.
Because this limits the willingness of employees to relocate their jobs to a metropolitan area, he expects long-term negative effects on the economy. “We talk too much about affordability in the housing market and not enough about availability,” concludes von Saucken.
Only 185,000 new apartments are expected to be completed in Germany this year, Colliers expects in its latest housing market report. That would be around ten percent less than a year ago and the lowest level in 13 years.
The reasons for this include increased costs and high levels of bureaucracy. In addition, according to von Saucken, it is often overlooked that between 70,000 and 90,000 units of the newly built apartments go to owner-occupiers every year and are therefore not available to the rental market.
In this difficult situation, the growing number of one- and two-person households, especially in urban areas, is exacerbating the housing shortage problem. According to Colliers calculations, the number of households in the 50 largest German cities is expected to increase by 408,400 by 2040. Of these, 291,900 will be added in Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich alone. There are currently around 5.9 million households in the so-called top 7 cities, with the most in Berlin at 2.22 million.
The number of one- and two-person households in particular is likely to grow above average by then. “The current share of around 15 percent for alternative forms of housing such as serviced apartments and student housing in German cities can increase in the next few years,” expects von Saucken.
Despite continued low supply and increasing demand, there are at least initial positive signals of a trend reversal. In 2025, the number of building permits rose by around ten percent to 238,500 units for the first time in years.
However, because it usually takes five to ten years between approval and readiness for occupancy, the supply of housing is likely to remain too low in the coming years. “The larger projects from 2020 and 2021 in particular will not be completed until this year,” says von Saucken.
Investors' increased return expectations are also proving to be challenging. After costs – for the investment manager, for example – they should be 4.5 percent to make it worthwhile to invest in a property. “They quickly reach the limits of what makes economic sense,” observes von Saucken.
Compared to last year, returns on residential investments have now increased by an average of 25 to 30 basis points. The top yields for young existing properties are 4.1 percent in the top 7 cities, and an average of 4.8 percent in the 50 largest German cities.
Another pressure is that risk-free investments such as ten-year federal bonds now yield around 3.6 percent and are therefore becoming increasingly attractive as an alternative. Real estate returns therefore have to yield more.
“The rule still applies to investors that the distribution must be 1.5 to two percent higher,” says Iris Schöberl, Managing Director Germany at the fund provider Columbia Treadneedle and President of the umbrella association of the German real estate industry ZIA. This is possible with a ten-year holding period for a property and index rents. Index rents contractually link the rent amount to the consumer price index - if inflation increases, the rent automatically increases, without any negotiation about the local comparative rent.
From the tenant’s perspective, this has consequences. Prices for existing apartments in the top 7 cities have increased by 2.5 percent in the past twelve months to an average of 16.75 euros per square meter (euros/sqm). Prime rents rose twice as much by five percent to 24.05 euros/sqm. From a tenant's perspective, living outside the metropolises is even cheaper in many places. According to Colliers calculations, the average rent in the 50 largest German cities is currently 12.15 euros/sqm.
But even if the price increases are no longer quite as strong as in previous years, the Colliers experts still expect further rent increases in existing and new buildings in the medium to long term due to the low number of new buildings.
These prospects are stimulating the interest of national and international investors. From their point of view, residential properties continue to belong as an addition to a long-term portfolio. It is often insurers, pension funds and family offices that want to buy with little or no outside capital. “What is in demand is the young existing building up to the new building,” observes von Saucken.
The situation is similar for international investors, who are also happy to invest more in the German housing market again due to the lower prices in many places. In the past twelve months, 14.2 billion euros in cross-border real estate capital flowed into Germany.
According to Colliers calculations, Germany is in fourth place worldwide behind the USA, Great Britain and Japan. “Germany is still seen as a very interesting market internationally, but many people are now staying away from Berlin,” says Iris Schöberl in view of the current political discussion about expropriations.
