Germany’s housing market adjusts to permanent scarcity
Germany's housing shortage has now definitively crossed an important line. What was once treated as a cyclical undersupply
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Foreign investors are writing the first chapter of Germany’s real estate recovery, not domestic buyers. Cross-border capital accounted for between 40% and 47% of all transaction volume in 2025 — the highest level since before the downturn — and consultancies expect this share to hold or rise in 2026. With brokers PTXRE forecasting roughly €40bn in deals next year, compared with just €23.9bn through Q3 2025, it is international money that is stabilising prices, taking risk, and quietly setting the benchmarks many German institutions will later have to live with.
Market observers from Colliers to CBRE describe the surge as textbook first-mover behaviour: foreign buyers are exploiting discounted valuations while domestic institutions remain hesitant, weighed down by financing costs, refinancing gaps and lingering policy uncertainty. One adviser summed up the mood bluntly: the view from abroad is now more optimistic than the view from inside Germany. Investors from the US, UK, France, Asia and the Middle East are scouting the market at a pace that local pension funds and insurers have not matched.
CBRE data underline the shift. Foreign investors accounted for 47% of all commercial transactions in H1 2025, up from 38% a year earlier. In hotels the foreign share reached 63% in Q3 — the highest in a decade. Even in residential, long dominated by German buyers, cross-border capital captured 34% of multifamily volume. Logistics and healthcare saw similar patterns, confirming that foreign investors gravitate toward defensive income, demographic strength and long-term structural demand rather than cyclical optimism.
The living segment remains the largest magnet for both domestic and international capital, drawing close to 40% of institutional investment. With residential shortages worsening and household formation outpacing completions, foreign buyers increasingly view German rental housing as a reliable cash-flow play. Multifamily investment reached €6bn in the first nine months of 2025, up 25% year on year, supported by forward deals that helped keep development pipelines alive. Prime yields in the top seven cities held at around 3.40%, with brokers expecting slight compression as bid and ask prices begin to meet.
Within living, micro-living has become the standout. Compact, often furnished units for students, young professionals and temporary residents show average occupancy of 96% across major cities, driven by structural tenant demand rather than cyclical growth. The sector’s early development was shaped by foreign platforms such as International Campus, PGIM-mandated funds and pan-European operators like Greystar. German investors — berlinovo, HanseMerkur Grundvermögen, Union Investment, Commerz Real — have since scaled up, but foreign capital still defines the segment’s tone and pace.
PGIM Real Estate’s OmniLiv platform illustrates the momentum. Backed by PGIM’s European value-add strategy, OmniLiv launched in March 2025 and quickly began converting offices into residential products in Berlin and Frankfurt. “Lack of high-quality residential supply continues to drive investment opportunities across key cities,” said managing director Rainer Nonnengaesser. Yet despite strong demand, micro-living transaction volume remains low — just €118m through Q3 2025, according to Cushman & Wakefield — because supply and development activity lag investor appetite.
Beyond micro-living, foreign activity is strongest in niches with clear long-term fundamentals. Logistics continues to attract North American and Asian capital on the back of low vacancies, reshoring and rising e-commerce volumes. Healthcare assets benefit from demographic certainty and operator consolidation, drawing specialised foreign funds looking for yield paired with stability. Data centres — where foreign buyers already dominate — remain underpinned by power scarcity and hyperscale demand, with Frankfurt’s data-centre economy having nearly doubled over five years.
The recovery narrative is being shaped deal by deal. In September, Hayfin acquired Berlin’s Gropius Passagen from Nuveen and Unibail-Rodamco-Westfield — a 95,000-square-metre, 150-tenant asset with annual turnover of €200m. “A locally dominant scheme in continental Europe’s largest retail market combining defensive qualities with significant value-add potential,” said Hayfin managing director Carlos Colomer. The deal underlined two points: foreign capital is willing to take asset-management risk, and it moves quickly when pricing aligns with its view of long-term value.
Family office capital has been equally assertive. Sandra Ortega’s acquisition of two office properties for €150m — Hamburg’s Telefonica headquarters and a Munich building occupied by Allen & Overy — highlighted how private foreign buyers, operating with little or no leverage, can buy ahead of German institutions constrained by governance, refinancing fears or internal committee cycles. These investors have become the fastest actors in the early-cycle phase.
Other significant flows include Globe Trade Centre’s €448m purchase of a 5,165-unit residential portfolio from Peach Property in late 2024 and renewed North American interest in data-centre and logistics clusters around Frankfurt and Hamburg. The pattern repeats across sectors: foreign buyers are increasingly defining price points, and domestic institutions — even well-capitalised ones — are reacting rather than leading.
The result is visible market bifurcation. Assets aligned with structural themes — housing, logistics, healthcare, data centres, micro-living — attract deep pools of foreign capital and trade at tighter spreads. Older offices, secondary retail and assets with capex overhangs remain stuck in extended price discovery, in some cases waiting for sellers to capitulate or for domestic buyers to regain conviction.
For German institutions, the strategic risk is clear. The longer they delay re-entry, the more they risk paying foreign-set prices in 2026 or shifting into riskier, opportunistic strategies that sit awkwardly with their mandates. This cycle’s opening act is being written by outsiders. Whether that proves to be a durable vote of confidence or a temporary exploitation of local dislocation will become clearer over the next year. For now, international capital is setting the pace — and Germany’s recovery is following its lead.
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