The German real estate market showed overall stability during the third quarter of 2026, according to the property price index published by the Association of German Pfandbrief Banks (VDP). Nationally, prices increased by 0.2 percent compared to the previous year’s quarter, although they slightly decreased by 0.2 percent when compared to the second quarter of this current year.
A striking feature of this period was the clear divergence between residential and office property prices. While residential property prices still posted a year-on-year growth of 1.0 percent, they experienced flat performance quarter-on-quarter (-0.1 percent). Retail properties remained stable, showing no change over the past twelve months, but did rise by 0.1 percent in the last three months. In contrast, office properties saw a significant decline, falling by 3.9 percent year-over-year and by 1.0 percent in the last quarter.
Jens Tolckmitt, Chief Managing Director of VDP, noted that the current market conditions, particularly the sharply increased financing costs since the beginning of the year, are generally making real estate investments more challenging, leading specifically to falling office prices. He added that residential prices are being supported by persistent high demand for living space.
The rise in residential prices was mainly driven by owner-occupied housing, which saw an overall increase of 1.4 percent compared to the third quarter of 2025. Specifically, single-family homes appreciated by 1.3 percent, and condominium prices rose by 2.3 percent. Multi-family houses saw a modest increase of 0.5 percent over the previous year’s quarter. Across all residential segments reviewed, there was almost no price change compared to the second quarter of this year.
The rental market intensified in the reporting quarter, fueled by a significant shortage of housing. New lease rents for residential apartments continued to rise dynamically by 3.5 percent compared to the third quarter of 2025. Because this rental growth significantly surpassed the increase in multi-family housing prices, the returns, as measured by the VDP index for property rents, noticeably rose by 2.9 percent during the review period.
When examining the largest cities (Top-7 cities), the price development for residential properties was slightly more positive year-over-year compared to the national average. Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart all recorded an average price increase of 1.4 percent compared to the previous year’s quarter. Hamburg saw the strongest increase at 2.4 percent, followed by Frankfurt at 1.6 percent and Cologne at 1.4 percent. Stuttgart was the only exception, registering a decrease of 0.5 percent. However, compared to the second quarter of this year, all seven metropolitan areas posted negative growth rates, ranging from -0.4 percent (Düsseldorf) to -0.9 percent (Stuttgart).
In these major cities, the scarcity of housing that cannot meet demand resulted in further rent increases in the third quarter of 2026, averaging 3.0 percent year-over-year. The range for these cities spanned from 1.4 percent (Stuttgart) to 4.1 percent (Hamburg). Consequently, average returns in the Top-7 cities increased by 1.5 percent.
The trends in the commercial real estate market were inconsistent during Q3 2026. While retail property prices held steady both year-over-year and quarter-over-quarter, office property prices saw a clear dip, falling 3.9 percent annually and 1.0 percent quarterly.
Conversely, new lease rents for office space rose noticeably by 2.5 percent compared to the same period last year, and retail properties gained 1.7 percent in rental growth. Based on these price and rental developments, returns increased by 6.7 percent for office spaces and by 1.8 percent for retail properties.
Tolckmitt concluded that the sharply increased financing costs are currently placing pressure on both residential and commercial markets. In the commercial sector, especially the office segment, environmental factors are also proving burdensome. He explained that the decline in office prices reflects a challenging environment marked by geopolitical conflicts and slowing economic conditions. Furthermore, structural changes, such as the rise of home office arrangements, continue to hinder the office market. This has led to subdued space demand and rising vacancy rates. He added that the general interest rate environment is also forcing investors to demand higher returns. This combination of factors makes the market environment challenging.
