Recent gatherings in the real estate sector, such as at Expo Real in Munich, were characterised by a cautious underlying mood. Discussions primarily focused on the revaluation of real estate portfolios. Nevertheless, market participants with available capital are observing an increasing focus on which European markets will initiate a recovery and gain momentum. Experts identify Germany as a market with significant potential that deserves particular attention.
Past years have been marked by rising interest rates, slowed economic growth, and subdued transaction activity, which have significantly impacted market sentiment. Current observations, however, suggest that real estate values in Germany could be finding a bottom, although further corrections cannot be ruled out if interest rates continue to rise. It is noteworthy that the transaction volume in the first half of 2026 was 13 per cent above the previous year's level. The price discovery phase is also significantly more advanced compared to twelve months ago.
Attractive Fundamentals and Sector Potentials
Investors are once again focusing more on the fundamental conditions underlying real estate investments. These fundamentals are regarded as attractive. In German metropolitan areas, there continues to be a structural housing shortage, while the development of new projects remains limited. The logistics sector is significantly benefiting from the strategic shift towards regional supply chains. Furthermore, the growing demand for digital infrastructure is opening up new opportunities in the area of data centres and associated real estate.
The office sector, however, is expected to represent a weak point in the market. Owners here are urged to make substantial investments to secure the competitiveness of their properties and adapt to new user requirements. The upcoming phase of the market cycle will differ fundamentally from the previous one. Falling interest rates and rising valuations will no longer be the primary drivers of returns. Instead, performance will increasingly depend on income generation, stringent operational implementation, and the precise selection of suitable properties.
Selective Market Environment and Opportunities
This creates a more selective, yet potentially more attractive market environment for investors. The focus is on quality, stable cash flows, and sectors that benefit from long-term demand drivers. Simultaneously, many owners are dependent on capital to be able to continue their business strategies over a longer period. This generates interesting opportunities in the areas of secondary markets and recapitalisations.
- —Continuous housing shortage in major cities with limited project development.
- —Growth potential in the logistics sector due to the realignment of supply chains.
- —Opportunities in data centres due to high demand for digital infrastructure.
- —Office sector requires significant investments to secure competitiveness.
Despite ongoing economic and political challenges in Germany and an expected uneven market recovery, real estate markets are often particularly attractive precisely when general caution prevails. It is anticipated that further significant transactions will come onto the market in the fourth quarter and into 2027. The combination of revalued properties, limited supply, and solid fundamental demand factors could make Germany one of Europe's most attractive investment markets, according to Josh Cleveland, Partner and Head of EMEA at StepStone Real Estate.
