Germany’s developers talk recovery, but the arithmetic hasn’t changed

Germany's project development market is showing "first signs of recovery" after years of crisis, according to researchers Bulwiengesa. But a recent webinar discussion with lenders and developers revealed a stark divide between improving sentiment and unchanged economic fundamentals.

André Adami, Head of Residential at Bulwiengesa, struck an optimistic note. "We have now finally reached the low point. The buds are currently blossoming again in residential construction – we are in the spring of a new cycle. Project developers are buying land again and want to get started." The firm expects sustained completion growth from 2027 onwards.

In the webinar, Felix Embacher, presenting Bulwiengesa's Development Monitor covering 23,000 projects nationwide, reported overall project development volume down 4.2% in 2025. Housing fell 1.8%. But construction starts are declining across all asset classes and city categories. "If construction starts go down as we see here, the expectation that we'll have record completions in two years is wishful thinking rather than reality."

The "low point" looks historically dire. Bulwiengesa expects around 180,000 housing unit completions for 2025 when final figures are in, falling to 150,000 in 2026. Rental listings are down 7% year on year, now 20% below 2015 levels. Seventy-one contractors building residential projects entered insolvency between January and October 2025. Around 32% of projects experienced delayed construction starts in the latest quarter.

Andreas Beulich, Federal Managing Director of developers' association BFW, pushed back hard against talk of recovery. "We are in a veritable crisis. I'm always happy when you see some tender plants here and there, but we are building far too little for what we need." He warned explicitly against interpreting marginal improvements as a trend reversal. "We have to be honest that we are doing far too little. This has to be a warning for all of us."

Financing reality

Lenders insist they remain willing to finance viable projects. The problem is viability.

Holger Kuball, Head of Residential and Hotel Real Estate at DKB, cut through the complaints. "We have no problem providing debt. The problem is equity availability." Higher interest rates mean higher capital service costs. Same income, more equity required. Equity requirements have risen to around 25%, with some hotel projects requiring 50%.

Michael Brumbauer from Bayern LB reinforced the point. "I'm not saying we've tightened financing conditions. We've adapted to market conditions. The A and O is always cash flow." Construction costs rising, revenues under pressure, the gap between what projects cost and what they generate has widened dramatically.

For offices, the squeeze is tighter. Jörg Fernsebner, also from Bayern LB, noted pre-rental requirements now at minimum 40%. "There's almost a Gordian knot. We banks want pre-rental for office development. The project developer can't deliver it."

Kuball reported better project inquiry quality over the past six months, suggesting developers are adapting to the new reality. On distressed assets, he was clear about the approach. "Banks work to minimize losses. If a project is fundamentally sound, it should be worked out rather than forced onto the market at a steep discount."

Political failure

Beulich directed his sharpest criticism at political responses. The Bau-Turbo initiative is insufficient. "These are first measures going in the right direction. But that takes time. Municipalities have to implement it. It doesn't work immediately."

What's needed is a comprehensive package: stable funding with clear incentives, radical simplification through standardised Type E buildings, action on land. "We need speed. We need land. We have to become faster. It has to become easier."

Worse is the direction of rental law reform. Berlin's proposals are sending a hostile signal to private investors. "If you look at what's planned with rental rights to keep the market in check, it will be very difficult to find investors when the signal is going out that we don't want you here." Private developers provide the bulk of housing supply. Deterring them is counterproductive.

The industry faces a timing problem. Even if policy shifts today, market adaptation takes time. Projects scheduled for 2027-28 completion look uncertain given current construction start levels. Beulich's message was stark: "We simply don't have the time anymore. We already have to think about 2027, '28, '29."

REFIRE: Germany's housing shortage is worsening while the industry capable of addressing it is operating under conditions that make delivery economically impossible. Whether the "spring of a new cycle" arrives depends on fundamentals that haven't yet changed.