Rising prices for German building land choke new housing supply

Germany’s residential property market has stabilised, but the market for building plots remains in clear decline. The Real Estate Market Report Germany 2025, published by the Working Group of Senior Expert Committees (Gutachterauschüsse) and the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), shows that transactions and prices for existing homes have largely returned to 2022 levels. Land sales for new residential development, however, continue to fall. For institutional investors, the conclusion is straightforward. Existing assets benefit from limited new supply, while growth through development has become much harder to achieve.

Monetary turnover across all property segments rose 15% to €247bn in 2024, with the number of purchase contracts up 9% to 805,000. Residential property accounted for 73% of all transactions. Sales of owner-occupied homes reached 253,000, up 13% year on year and back at 2022 levels. Prices for detached and semi-detached houses stabilised at €2,400 per square metre in the mid-price segment. Prices in the upper segment fell by 8%, while the lower segment was unchanged. For existing condominiums, prices in the upper segment fell by 6%, with middle and lower price bands broadly stable. In large cities, the market continued to cool.

Andreas Teuber, chairman of the Working Group of Senior Appraisal Committees, said that the gap between existing homes and new builds remains wide. The market for existing residential property has largely settled. New construction, by contrast, remains out of reach for many households and continues to lag behind demand. There has been little improvement this year.

Land markets point to a stalled development pipeline

The land market tells a far less encouraging story. In 2024, just 46,200 building plots for owner-occupied homes were sold nationwide. That was 6% more than in 2023, but less than half the roughly 100,000 plots sold each year during the 2010s. In 2014 alone, 93,400 plots changed hands. This measure covers owner-occupier plots and therefore does not capture the entire development landscape, but it remains a clear indicator of how constrained the market has become.

Despite the sharp drop in volumes, monetary turnover has barely moved. At €9.1bn, it was only slightly below the €9.4bn recorded in 2014. The implication is simple. Average land prices have almost doubled over the past decade.

Matthias Waltersbacher, head of housing and construction at the BBSR, said that high construction and development costs are slowing the sale of new plots. Strong demand combined with these costs is pushing land prices higher and making projects increasingly difficult to finance. For developers and institutional investors, the economics have shifted decisively. Sites that supported viable multi-family schemes a few years ago now require rents or sales prices that many local markets can no longer absorb.

Plots for multi-family housing have been hit particularly hard. Sales are down 55% nationwide compared with 2014, and in North Rhine-Westphalia the decline reaches 80%. Lower Saxony leads the state ranking in 2024 with 440 plots sold. In the 2010s, the state sat firmly in the middle of the table. Waltersbacher noted that denser construction is essential if demand is to be met. The fact that sales are now concentrated in less densely populated regions underlines how sharply activity has fallen elsewhere.

Regional differences are stark. In Thuringia, Saxony-Anhalt and Brandenburg, plot sales have dropped to just over 30% of their 2014 level. The fall has been less severe in the south. Bavaria is around one-third below its previous level, and Baden-Württemberg around one-quarter. Since 2023, activity has picked up in Middle Franconia, parts of Saxony, the Munich region, East Westphalia and many independent cities in North Rhine-Westphalia. Declines continue in Mecklenburg-Western Pomerania, parts of Hesse and southern Brandenburg.

For investors holding stabilised multi-family portfolios in supply-constrained cities, this picture supports the case for continued rental growth. If development remains limited by land prices and construction costs, existing stock will face less competition from new supply. Energy-efficient buildings are likely to benefit most. The downside is clear. Expanding portfolios through development is now viable only in a small number of high-demand locations with sufficient affordability.

Office and commercial property continue to reprice

The office market is still adjusting. Monetary turnover fell from €24.8bn in 2021 to €9.2bn in 2024, while the number of transactions declined from 3,800 to 3,000. According to Teuber, the average price per office property has more than halved within two years. This reflects a shift towards smaller assets and cheaper locations changing hands more frequently, rather than a wave of forced sales.

Across commercial real estate as a whole, the number of transactions has fallen from 85,300 to 58,100 over the past decade, a drop of 32%. Monetary turnover declined by 26%. Turnover for commercial building plots fell by more than a third, from €4.5bn in 2014 to €2.9bn in 2024. Offices now account for less than 19% of total commercial property turnover.

But policy ambition remains far removed from market reality. Federal housing policy has repeatedly cited 400,000 new homes per year as a target. Official data, however, show fewer than 50,000 building plots for private homes being sold each year. Even if planning and permitting are accelerated, this gap will not close without a meaningful shift in land prices, construction costs or affordability.

For institutional investors, the Real Estate Market Report Germany 2025 confirms what has been visible on the ground for some time. Germany’s residential market has stabilised, but supply constraints continue to limit growth. There is no sign yet that those constraints are about to ease.