Avison Young's Market Outlook 2026 outlines a nuanced picture of the German real estate markets. The nascent recovery has been temporarily affected by geopolitical tensions, particularly the Iran conflict. Although market activities are not abruptly stagnating, the hesitant stance of occupiers, financiers, and investors continues. Nevertheless, the analysis attests to the market's ongoing dynamism, even under the currently challenging conditions.
At the beginning of the year, investment markets saw slight positive impulses from the overall economy and occupier markets. However, since the end of February, the significantly increased interest rate level requires a re-evaluation of planned investments. Nicolai Baumann, Country Manager Germany at Avison Young, points out that this development could render some projects unprofitable unless price adjustments are made. Jochen Völckers MRICS, Managing Director and Head of Capital Markets Germany at Avison Young, adds that higher interest rates across the entire maturity spectrum affect the profitability of investments and thus put pressure on prices, especially for energy- or space-inefficient properties.
Ongoing transactions were still concluded at the originally agreed terms. However, the increased uncertainty since the end of February leads to more critical scrutiny by buyers and financiers. While reaching the previous year's volume for 2026 as a whole is considered possible, the forecast is highly dependent on geopolitical developments.
Another critical point is the situation regarding real estate financing. The proportion of loans with significantly increased credit risk, as well as so-called Non-Performing Loans (NPLs) in the commercial sector, has risen sharply in Germany and is above the European average. Christian Ströder, Director Market Intelligence at Avison Young in Germany, warns of an increasing wave of follow-up financings which, under tightened regulatory conditions, differing price expectations, and a lack of equity, could lead to difficult situations. Johann Mikhof, Director Leasing & Investment, emphasises that radical rethinking for existing properties is necessary in the current market phase to counteract value depreciation. Cosmetic renovations or classic modernisations in secondary locations are often insufficient; instead, bold repositioning or consistent repurposing is required.
Occupier markets correlate strongly with overall economic development. The already elevated corporate uncertainty has further intensified, partly accompanied by stagflation tendencies characterised by increased inflation and reduced growth. Michael Kubik, Head of Office Leasing at Avison Young in Germany, explains that this impacts investment and employment plans and thus also location and space decisions. This is likely to lead to a continued high rate of lease extensions in the office markets. In conjunction with reduced space requirements due to hybrid working models, this development limits new contracts and expansions. Nevertheless, office take-up in 2026 could surpass previous year's results in several German real estate hubs, provided geopolitical and economic uncertainties diminish.
The German economy is once again under pressure, which extends beyond the termination of specific conflicts. Baumann summarises that a multitude of geopolitical disrupting factors exist. Nevertheless, investment programmes and the improvement of location conditions could gradually help the overall economy achieve more resilience and thus give the real estate markets positive tailwinds again.
