At 2.2% vacancy the market has run out of slack

Germany’s rental housing market has entered its tightest phase in a quarter of a century. According to the latest Empirica CBRE vacancy index, the number of market-active vacant apartments fell by roughly 45,000 units in 2024 to just 522,000 nationwide, pushing the vacancy rate down to 2.2 percent. In the major cities, it is even lower. In Munich, Frankfurt and Freiburg, the rate has fallen to 0.1 percent. For practical purposes, nothing is left to rent.

The speed of change is striking. Vacancies have now declined in 338 of Germany’s 400 districts. A year earlier, this was the case in less than half. Empirica describes the drop as the second-largest annual decline in the 24-year time series, exceeded only by the surge of refugee accommodation demand after the outbreak of war in Ukraine. The breadth of the trend is even more telling. Vacancy is no longer just disappearing in the strongest markets. It is falling almost everywhere, including regions once defined by persistent oversupply.

Supply down, demand up

The collapse in vacancy reflects three overlapping pressures: net migration, mobility into growing regions and a steep drop in new construction. Net immigration remained very high in 2024, while the wider metropolitan areas around major cities offered little respite. Completions fell sharply. According to the Federal Statistical Office, roughly 42,000 fewer apartments were completed in 2024 than the previous year, and the forward pipeline is thinning further.

This combination is squeezing vacancy out of the system. In growth regions, the vacancy rate has fallen to just 1.4 percent, well below the level usually associated with a functioning rental market. In shrinking regions, by contrast, vacancy rates still sit near 7 percent, yet even here they are moving down. Schwerin has seen a 2.5 percentage point fall over five years, while Pirmasens, Leipzig and Frankfurt an der Oder have each seen declines of nearly two points over the same period. Only Suhl and Jena have recorded meaningful increases.

Munich, Frankfurt and Freiburg now have vacancy rates of 0.1 percent, with Münster and Darmstadt close behind at 0.2 percent. These markets are effectively frozen. A healthy vacancy rate is typically considered to be in the range of 2 to 3 percent, providing room for tenants to move and for landlords to upgrade or reconfigure stock. Germany’s leading cities are now far below that threshold.

Where vacancy exists, it is largely in structurally weakened areas. Dessau Roßlau stands at 7.6 percent, with Pirmasens at 7.3 percent and Chemnitz at 7.0 percent. Yet even at these levels, momentum has turned downward. In weaker cities, reductions reflect shrinking inventories rather than improving demand. Buildings are being demolished, sold off or withdrawn from the market, further reducing choice.

Rents rise, vacancy retreats

The impact on pricing is evident. Rents for new contracts are rising faster than at any point in recent decades. Local brokers report queues for vacant units in secondary locations, while digital platforms show noticeably shorter marketing periods. Encouraged by stronger fundamentals, purchase prices in several cities have stabilised or turned upward after two years of adjustments driven by interest rates.

A normalisation dynamic, briefly visible in late 2021, has evaporated. The new environment is defined by scarcity. Tenants compete for limited stock, investors see firmer income growth, and liquidity is strongest in energy-efficient assets where turnover is already low. Rising wages are providing some counterweight to rent inflation, but not enough to ease the fundamental imbalance.

The outlook points to more of the same. Completions are expected to fall again in 2025 and 2026, reflecting a pipeline damaged by higher financing costs and cancelled projects. Developers report limited appetite for new starts, even in locations with strong demand, because exit assumptions remain difficult to model.

Net migration from abroad is likely to slow, but internal migration is unlikely to soften pressures inside the main job markets. For many families, moving further out no longer offers meaningful savings. Shortages are therefore expected to intensify until at least 2027, with vacancy retreating further below already strained levels.

For institutional investors, several themes stand out. Rental growth looks firm, particularly in energy-efficient stock where operating costs are lower and refinancing risks are more manageable. Scarcity will support occupancy, reduce tenant churn and underpin forward income projections. Liquidity may improve for well-located assets as domestic capital returns to the market and foreign buyers continue to pursue defensive exposure. Very low vacancy contributes to valuation resilience.

Regional segmentation will remain wide. Eastern markets still offer higher vacancy and potentially more accessible entry points, though population trends and labour demand will determine which submarkets benefit from catch-up dynamics.

The policy context matters too. Legislative reforms aimed at accelerating planning and reducing building complexity, including Building Type E and the so-called construction turbo, may eventually help. But the data illustrate how far behind the curve new supply has fallen. Vacancy is not just low. It is disappearing.

Germany is now running a rental housing market with almost no slack. In the country’s top cities, vacancy has fallen to a statistical rounding error. In growth regions, it sits far below a functioning threshold. In weaker markets, momentum still points downward. The results are predictable: higher rents, firmer pricing and reduced mobility. Without a surge in completions, the housing shortage will not ease.

The message for 2026 is blunt. Vacancy is vanishing. It will take years, and a great deal more construction, before it returns.