• Good investor demand expected to continue

The vdp member banks perceive a positive sentiment on the market for Pfandbriefe and unsecured bank bonds. This is the finding of the seventh vdp Issuance Climate survey. For the first time since the survey was launched in December 2022, clearly positive values have been calculated for all three scores.

Whereas the score for unsecured bank bonds has improved from +5 to +22 since the last survey, published in June 2025, the score for Pfandbriefe has advanced into positive territory for the first time (+14 compared with -1 in June 2025). These two developments have led to an overall score of +17, which is also the highest to date.

The vdp Issuance Climate survey is conducted and published twice a year. The sentiment indicator ranges from -100 to +100 points.

Strong demand for Pfandbriefe in 2025

During the first 11 months of this year, the vdp member banks issued new Pfandbriefe worth a total of EUR 61,2 billion. That was 22% up on the corresponding period one year earlier. New public Pfandbriefe issued during the same period were reported at EUR 21.4 billion, representing an increase of 73%. New mortgage Pfandbriefe were placed with a total volume of EUR 39.8 billion between January and November 2025, meaning an increase of 7%. Benchmark-format Pfandbriefe (> EUR 500 million) accounted for a volume of EUR 31.4 billion compared with EUR 29.9 billion in the corresponding period one year earlier.

Given that residential property financing business is long-term oriented, it is of considerable importance that it was possible to successfully place Pfandbriefe across the full maturity spectrum during the course of 2025. Around one third of all benchmark issues have maturities of at least seven years.

“The good demand for longer-dated Pfandbriefe supports the maturity-matching refinancing of long-term residential property financing,” Sascha Kullig, Management Board member at vdp, commented.

Determinants of demand in 2026

Whereas current investor demand for Pfandbriefe scored 78 points in the latest survey, the experts at the vdp member banks were considerably more cautious in how they assessed the coming six months, awarding a value of 22 points. Among the determinants of the development of investor demand for Pfandbriefe in the next six months, the asset-swap spread level (-20 points) and the yield pick-up over Bunds (-19 points) were viewed as being rather negative for the reason that both factors detract from the relative attractiveness of Pfandbriefe. German Pfandbriefe have narrowed vis-à-vis asset swaps by around 20 basis points during the course of this year. By contrast, the maturities (+27 points), the asset business to be refinanced (+38 points) and the expected oversubscription level (+49 points) were named as positive factors.

Unsecured bank bonds in high demand

The segment comprising unsecured bank bonds likewise presented an upbeat picture. Current investor demand received a score of +72 points, compared with +43 points for the last six months. The surveyed experts took a noticeably more sceptical view of the coming six months, awarding a score of 0. “One reason for this assessment is likely to have been the narrowing of the spreads associated with the very strong demand, which could lessen the relative attractiveness for investors and so dampen demand. On the whole, however, the strong demand for the unsecured bank bonds issued by our member banks is a reflection of our investors’ confidence in the resilience of the banks given their good earnings situation and good to very good capital adequacy levels,” Kullig pointed out.

Suggestions to improve the usability of the Climate Delegated Act

In a joint white paper, the Association of German Pfandbrief Banks (vdp) and the Energy Efficient Mortgages Hub Netherlands (EEM NL Hub) call for a pragmatic revision of the rules pertaining to real estate in the EU Taxonomy Climate Delegated Act. Both organisations support maintaining climate change mitigation as environmental objective, yet at the same time propose a more practice-oriented section of the EU Taxonomy in respect of the criteria relating to Construction and Real Estate. They propose seven adjustments that would simplify the criteria of the Climate Delegated Act, align them with national energy efficiency and building requirements, and so make it easier to designate the financing of energy efficient buildings, building renovations and new constructions throughout Europe as sustainable.

“Ambitious climate targets can only be met by ensuring practical applicability,” Sabrina Miehs, Head of Sustainable Finance at the vdp, pointed out. “To be able to channel capital flows into sustainable projects, the regulatory framework for credit institutions, investors and customers needs to be comprehensible and implementable.”

“This joint initiative sees itself as a constructive contribution to the on-going review of the EU Taxonomy. Far from being a step backwards, simplified and clearer rules, that consider data availability and data governance considerations, are a prerequisite for achieving the climate ambitions of the EU Taxonomy,” Vincent Mahieu, one of the founders of the EEM NL Hub, emphasised.

Practical implementation, not regulatory overload

The white paper is based on experience gathered by leading credit institutions from Germany and the Netherlands that together represent around one third of the European mortgage market. As the white paper demonstrates, the current technical criteria of the EU Taxonomy are often difficult to apply to real estate finance in practice. They give rise to uncertainty and impose disproportionate demands, since many provisions are not embedded in national legislation and cannot be demonstrated for individual properties. This makes it particularly challenging to develop financial products aligned with EU Taxonomy for homeowners.

The seven concrete proposals put forward by the vdp and EEM NL Hub are as follows:

1: Align Taxonomy criteria with national EPBD implementation requirements

Observation:

The Climate Delegated Act provides for more stringent energy efficiency values than national standards as implemented under the Energy Performance Buildings Directive (EPBD). The result is legal uncertainty, double regulation and a lack of practicality.

Solution:

The national implementations of the EPBD ought to suffice for EU Taxonomy compliance. An additional tightening by 10% should only be anchored as an option.

2: Update renovation criteria to promote renovation of buildings

Observation:

Even if the Taxonomy criteria for renovation are met in their entirety but the building (unit) does not achieve a high energy-efficiency level after renovation, only a fraction of the loan and not the entire financing of the building (unit) can be classified as EU Taxonomy-aligned. This provides a clear incentive to prioritise buildings that are already relatively energy efficient and only need a small improvement to become EU Taxonomy-aligned.

Solution:

Criteria are needed that promote the renovation of buildings that are currently classified as inefficient (energy classes D-G) and where a renovation might not immediately result in the highest energy class. Under the defined requirements for energy-efficient renovations, the entire property financing should be recognised as EU Taxonomy-compliant for the economic activity “renovation of existing buildings” if certain conditions are met.

3: Simplify renovation criteria, make them more (finance) user-friendly

Observation:

The current requirements under the EU Taxonomy for renovation activities are too technocratic and difficult to verify. Moreover, they prevent certain renovation measures. Loans must be split into different parts so that at least partial amounts can be recognised as EU Taxonomy-aligned.

Solution:

Clear and measurable criteria should be introduced (for example, by way of one of the following requirements: improvement by at least two energy label classes, a reduction of 30% primary energy demand without the need to disregard renewables, or several elements as recommended in a renovation passport). Regarding financing, EU Taxonomy conformity should not apply only to partial amounts, but to the entire renovation loan.

4: Streamline the DNSH criteria to allow for a flexible approach

Observation:

The “do no significant harm” (DNSH) criteria, which are intended to ensure that economic activities do not significantly harm any of the six EU environmental objectives, are excessively complex and out of proportion, especially for small renovation loans. Moreover, in many cases it is impossible to verify or demonstrate compliance on individual economic activity level.

Solution:

Introduce the option to report on the DNSH criteria as observation criteria but not as a requirement for EU Taxonomy-alignment. Only the climate risk assessment could be considered to remain mandatory provided the criteria are easily verifiable in practice.

5: Improve guidance and transparency of regulatory process to avoid uncertainty

Observation:

Frequent and contradictory communications from the European Commission give rise to confusion, room for interpretation and legal uncertainty.

Solution:

It would seem appropriate to introduce a formal consultation procedure with fixed deadlines, public participation by relevant stakeholders, and a clear-cut demarcation of responsibilities.

6: Adress data availability and GDPR barriers to allow financial institutions to use property-level data

Observation:

The lack of widespread data availability and lack of clarity and consistency in data protection rules prevents the use of energy- and building-related data. This renders ESG reporting more difficult and reduces transparency but even more importantly, prevents market actors from collecting property related information to create tailored advice to consumers and develop innovative customer propositions.

Solution:

A legal basis is needed that enables credit institutions (and other market actors) to access and use property-level data both for reporting and customer advisory purposes. The General Data Protection Regulation (GDPR) Article 6 (c),(e),(f) ought to apply as a permissive rule regarding sustainability and climate adaptation data.

7: Clarify the application of minimum safeguards to ensure proportionality

Observation:

No differentiation is made between the minimum safeguards for residential and commercial property loans. This results in pointless verification duties and needless bureaucracy. Social standards are regulated at the national level in any case.

Solution:

Mortgage loans to private individuals and SMEs ought to be exempted from minimum safeguard checks. With regard to loans for commercial properties, compliance should be assumed as long as there are no violations.

vdp member banks’ property finance business between January and September 2025 totals EUR 107.3 bn

In the first three quarters of 2025, the banks which together make up the Association of German Pfandbrief Banks (vdp) extended property loans totalling EUR 107.3 bn. This was 18.2% more than in the corresponding period one year earlier (Q1-Q3 2024: EUR 90.8 bn). The third quarter of this year alone accounted for new property loans totalling EUR 37.2 bn, which represents an increase of 20.4% compared with the third quarter of 2024 and is the highest quarterly figure since autumn 2022.

The main driver of the rise in property finance in the first three quarters of this year were residential property loans. Loans for the construction and purchase of residential properties totalled EUR 67.7 bn, which was 19.0% higher than in the corresponding period one year earlier (Q1-Q3 2024: EUR 56.9 bn). Residential property loan commitments totalling EUR 21.7 bn were recorded for the third quarter alone. Thus, the commitment volume for the immediately preceding quarter was achieved again (Q2 2025: EUR 21.6 bn).

Commercial property loans likewise saw a substantial increase in the period under review. They advanced to a volume of EUR 39.6 bn, which was 16.8% higher than in the first three quarters of 2024 (Q1-Q3 2024: EUR 33.9 bn). With new loans totalling EUR 15.5 bn, the third quarter was the strongest quarter for commercial property finance so far this year. Compared with the corresponding quarter one year earlier, loans were up by 32.5% (Q3 2024: EUR 11.7 bn).

“The property finance business of our member banks is picking up substantially – despite the challenges that continue to face the property market.” Jens Tolckmitt

“Considerably more loans will be granted in 2025 than in the year before. The property finance business of our member banks is picking up substantially – despite the challenges that continue to face the property market,” vdp Chief Executive Jens Tolckmitt commented. He went on to say that the growing volume of residential property loans does not signal an easing of the property market, since by far the greater part of the banks’ financing business relates to existing buildings, not new construction. Tolckmitt pointed out that the increase in commercial property financing, on the other hand, is a good indication that the lowest point in this segment has likely been passed. “Given the low level, however, this development should not be overinterpreted.”

Residential property loans: multi-family houses see strongest growth

Recording a volume of EUR 33.4 bn, loans for one- and two-family houses accounted for just under half of new lending for residential properties (EUR 67.7 bn). The increase in the first nine months of this year over the corresponding period one year earlier came to 16.8% for one- and two-family houses. The segments condominiums and multi-family houses saw financing volumes of EUR 14.0 bn and EUR 16.7 bn respectively (growth rates of 14.8% and 29.5% respectively) in the period under review. Loans extended for other residential properties totalled EUR 3.6 bn (+12.5%).

Commercial property loans: growth rates exceed 10% across the board

Financing for office properties, which rose by 12.6% year on year to reach EUR 19.7 bn in the first three quarters of this year, again represented the largest contribution to total loans for commercial properties amounting to EUR 39.6 bn. Loans for both retail properties and hotels likewise experienced double-digit growth in the months January to September of this year compared with the first nine months of 2024. While lending for industrial buildings totalling EUR 1.4 bn more than doubled, loans for other commercially used properties increased by 19.6% to EUR 5.5 bn.

Property finance portfolio increases slightly

As at 30 September 2025, total property loans granted by the vdp member banks came to EUR 1,031.9 bn. This was slightly higher than in the immediately preceding quarter (Q2 2025: EUR 1,029.5 bn). Once again, properties located in Germany made up by far the greater part of the financing volume, accounting for a share of 87%.

vdp property price index up by 3.6% year on year

The upward trend in property prices in Germany continued in the third quarter of this year. Compared with the corresponding quarter one year earlier, the property price index of the Association of German Pfandbrief Banks (vdp) rose by 3.6% to reach 183.7 points. The rate of increase was 0.7% compared with the immediately preceding quarter.

The figures used to calculate the vdp index have been collected by vdpResearch every quarter since 2010. They track price developments on the entire German market for residential, office and retail properties and – unlike other price indices – are based on an analysis of actual property transaction data from more than 700 credit institutions.

Once again, the larger contribution to the latest increase in prices was accounted for by residential property prices, which advanced by 3.8% compared with the third quarter of 2024. Compared with the second quarter of the current year, price growth here was calculated at 0.8%. Prices of commercial properties, which include office and retail property prices, were 2.8% higher year on year and 0.5% higher quarter on quarter.

“The recovery phase on the property market is consolidating further – driven primarily by the growth in residential property prices.”
Jens Tolckmitt

“Property prices have been on an upward trajectory since early 2024. The recovery phase on the property market is consolidating further – driven primarily by the growth in residential property prices,” vdp Chief Executive Jens Tolckmitt pointed out. “The market players have adapted themselves to the new framework conditions.” Tolckmitt went on to say that the situation on the commercial property market is more nuanced – depending, above all, on asset class, location and energy efficiency. However, he added, the properties currently being financed by banks have likewise seen prices rise continuously for several quarters now.

Residential properties: multi-family houses with strongest price increase

Growth in residential property prices, which has persisted for more than one year now, was also observed in the third quarter of 2025 – increasing by a total of 3.8%. Once again, prices for multi-family houses experienced the strongest year-on-year growth, standing at 5.2%. Over the same one-year period, prices for owner-occupied homes, consisting of single-family houses and condominiums, rose by 2.4%. Compared also with the previous quarter, prices for multi-family houses recorded a higher rate of increase (+0.9%) than prices for owner-occupied homes (+0.6%).

The fact that the housing market situation did not ease up in the third quarter of this year is reflected also in the growth in rents under new contracts for multi-family houses. Rents went up by 3.7% year on year, which was again a somewhat stronger rate of increase than in the previous quarter (+3.5%).  Measured by the vdp index for cap rates, returns on multi-family houses contracted by 1.4%, as rents for this property type rose less strongly than prices.

“The initiative to speed up housing construction is good and welcome, but more will be needed: proposals for many further effective measures are on the table.”
Jens Tolckmitt

The housing shortage, Tolckmitt commented, which is especially acute in the metropolitan areas, can be expected to continue for a number of years to come – after all, construction takes time. However, he stressed the need to keep working consistently also on the framework conditions to resolve the predominant problem of excessive construction costs. “The federal government’s recently passed initiative to speed up housing construction (the so-called ‘Bau-Turbo’) is good and welcome, as it helps to accelerate the planning and approval processes for new housing construction.” But he pointed out that the success of this initiative depends greatly, on the one hand, on local authorities making pragmatic use of the newly created measures. On the other hand, Tolckmitt went on, more will be needed: proposals for many further effective measures are on the table – such as, on the financing side, state guarantees of 80% for property loans to facilitate large-scale new housing construction. A lowering of property transfer tax for owner-occupiers – which is a matter for federal states to decide, however – could also give a decisive boost to the housing market, Tolckmitt said.

Housing in top 7 markets: Munich with greatest increase in prices

In the third quarter of this year, growth in residential property prices in Germany’s top 7 cities was even somewhat stronger than in the country as a whole. In Berlin, Cologne, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart, price growth averaged 4.6% compared with the corresponding quarter one year earlier. The metropolitan areas with the lowest and highest price increases for residential properties were Stuttgart (+2.4%) and Munich (+5.3%) respectively.

The persistently high demand for housing – particularly in the urban concentrations – again led to a marked increase in rents under new contracts.  Rents in the seven metropolitan areas rose by an average of 3.8% compared with the third quarter of 2024, whereby the increases ranged from +3.3% (Berlin) to +5.1% (Düsseldorf). Returns as measured by the vdp cap rate index decreased by an average of 1.1% in the top 7 cities. The only positive rate of change was recorded in Stuttgart (+0.7%).

Commercial properties: Offices again account for stronger price growth

The year-on-year increase in office property prices (+3.0%) contributed more to the overall rise in commercial property prices of 2.8% than growth in retail property prices (+2.2%). Compared with the previous quarter, the increase in office prices came to 0.6%. This was only marginally higher than the rise in prices for retail properties (+0.5%). Combined, the overall price level for both commercial property types was 0.5% higher in the third quarter of 2025 than in the second.

Whereas rents under new contracts for office properties advanced by 3.2%, growth in rents for retail properties amounted to 1.9% – compared with the third quarter of 2024 in each case. Year on year, returns as measured by the vdp cap rate index rose by 0.2% for offices, whereas they fell 0.2% for retail premises.

“Transaction activity on the commercial property market remains focussed on the top segment”
Jens Tolckmitt

 Referring to the trend in office and retail property prices, Tolckmitt commented: “Transaction activity on the commercial property market remains focussed on the top segment, that is, on energy-efficient, flexible properties in top locations.” Thus, he said, corresponding price increases are to be observed there. “The potential effects on the commercial property market of the ongoing uncertainty factors such as future economic developments as well as trade disputes and geopolitical conflicts remain to be seen.”

vdp study analyzes structure of residential property finance over time

Buying one’s own home is considerably more affordable today than it was immediately after the beginning of and during the 2022 turnaround in interest rates. This is the outcome of a recent study conducted by the Association of German Pfandbrief Banks (vdp) and published today under the title “vdp Spotlight: Structures of residential property finance 2025”. The main driver of the improved affordability is the combination of positive income developments and stable financing conditions.

This study is the latest in a series of surveys the vdp regularly carries out on the structure of the financing of owner-occupied houses and condominiums. Based on data provided by vdp member banks actively engaged in this business field, the study analyzes the proportion of borrowed funds, debt burden, loan durations and terms and conditions for home ownership financing in Germany.

“Real incomes are on the rise; the phase of interest rate increases is over for now. Thus, buying one’s own home is more affordable today than it was two to three years ago.”
Jens Tolckmitt

“The residential property market is continuing its recovery from the abrupt turnaround in interest rates in 2022. Prices and financing volumes have returned to an upward trajectory since mid-2024 – in small steps, but continuously,” vdp Chief Executive Jens Tolckmitt pointed out. “Real incomes are on the rise; the phase of interest rate increases is over for now. Thus, buying one’s own home is more affordable today than it was two to three years ago.” Tolckmitt added that rents under new contracts have been rising steadily. “As the rental housing market grows increasingly tight, buying one’s own home has again become more attractive. This is reflected in the growth in demand for loans.”

Long fixed-rate periods remain popular

The average interest rate payable on a residential property loan has dropped from 3.96% in 2023 to 3.50% in 2025. Moreover, the vdp study illustrates that the average debt burden ratio has remained virtually unchanged over the last two years (26.7% compared with 26.2%), and that the duration of loans has risen moderately from 26.6 years to 28.1 years on average. The average fixed-rate period was last calculated at 12 years. As in the past, borrowers are mainly choosing long fixed-rate periods.

Many potential property buyers were forced to withdraw from the market in the years 2022/2023 because the substantial increases in interest rates pushed financing costs significantly higher. At the same time, high inflation reduced households’ scope for spending. This is reflected in the structure of homebuyers’ incomes. The average income of households that bought and financed a property for their own use rose significantly between 2021 and 2023, whereas it recently fell again slightly. This indicates that at least some of the households in income brackets that withdrew from the market two years before were active again as homebuyers in 2025. The stabilization of interest rates, the curbing of inflation and the, in some cases, marked increase in incomes played a part in this development.

High transaction costs reduce households’ own funds

The ratio of borrowed funds to purchase price decreased from around 80% in 2021 to 76% in 2023 and rose again to stand most recently at around 83% in 2025. The level is due, not least, to high ancillary purchase costs. Since borrowers have to finance these costs out of their own funds, a higher property transfer tax, for example, reduces the maximum share of own funds that buyer households can put towards the financing. The borrowed funds ratio goes up as a result.

“A lower property transfer tax for self-users would make it easier for young families in particular to get a foot on the property ladder.”
Thomas Hofer

“To reduce the financial burden for households and thus facilitate access to home ownership, it would make sense to lower property transfer tax, especially for self-users. This would reduce appreciably the borrowed funds needed when buying a home, and young families in particular would benefit from this,” Thomas Hofer, Head of Real Estate Market and Real Estate Finance Domestic at the vdp and author of the study, emphasized. He added that banks attach great importance to borrowers having an adequate proportion of own funds and sufficient financial capacity. Moreover, in line with the requirements of the EU Mortgage Credit Directive (MCD), banks examine whether the borrower household can afford a potential loan.

Lending standards are not being relaxed

In this context, Tolckmitt took a positive view of the current situation on the market for residential property finance. “The Bank Lending Survey conducted by the Bundesbank illustrates that banks are not relaxing their lending standards. The debt burden ratio shows itself to be correspondingly stable.” The duration of loans has expanded moderately, and the proportion of borrowed funds has grown due to the fact that more threshold households are again entering the market.

“Lenders and borrowers continue to put safety first.”
Jens Tolckmitt

Households, moreover, tend to choose loan terms that are locked in for long time periods. These are still favourable in the long run. “All of these factors are evidence that lenders and borrowers continue to put safety first,” Tolckmitt remarked.

Up by 17%: vdp members extend more property loans in the first half of 2025  

The first half of 2025 saw the banks which together make up the Association of German Pfandbrief Banks (vdp) extend property loans worth a total of EUR 70.1 bn. The property financing volume rose by 17.0% compared with the first half of 2024. This positive trend was largely attributable to lending for the construction and purchase of residential properties.

At the end of the first six months of 2025, the volume of new residential property loans totalled EUR 46.0 bn, which was 22.0% higher than in the corresponding period one year earlier (EUR 37.7 bn). Total commercial property loans in the first half of 2025 came to EUR 24.1 bn. This was an increase of 8.6% compared with the first half of 2024 (EUR 22.2 bn).

“Investors and private households have now apparently adjusted to the new interest rate level.” Jens Tolckmitt on the higher demand for property loans

“The upturn in the property financing market continues. From January to June of this year, vdp member banks gave appreciably more property loan commitments than in the corresponding period one year earlier,” remarked Jens Tolckmitt, vdp Chief Executive. “Strong demand for housing and high investment pressure were the two main drivers. Loan commitments increased significantly for both owner-occupied residential properties and multi-family houses. Investors and private households have now apparently adjusted to the new interest rate level which, incidentally, is favourable in a long-term comparison.” The upward trend continues in the commercial property segment, too, albeit from a low level and with less momentum than for residential properties, Tolckmitt pointed out. “We expect the developments seen in the first half-year to continue in the second, when growth will again be fuelled primarily by residential property lending.” The geopolitical and economic environment remains an uncertainty factor, he added. 

Residential property loans: property classes with double-digit growth

All property classes contributed to the rise in the volume of residential property loans to EUR 46.0 bn. The strongest increase in relative terms, by 30.3% year on year, was recorded for loans for multi-family houses (EUR 11.6 bn). Loans for one- and two-family houses (EUR 22.8 bn) and for condominiums (EUR 9.3 bn) likewise showed double-digit growth rates of +21.9% and +17.7% respectively. Lending for other residential properties rose to a total of EUR 2.3 bn (+4.5%).

Commercial property loans: stronger increase for retail properties than for offices

Compared with the first half of 2024, total commercial property loans between January and June of this year came to EUR 24.1 bn. Just under half of this, at EUR 11.8 bn, was accounted for by office properties, total lending for which rose slightly year on year (+1.7%). Loans for retail properties went up by 13.6% to EUR 6.7 bn. Although loans for industrial buildings and hotels recorded significantly higher growth rates (+80.0% and +46.2% respectively), their absolute financing volumes of EUR 0.9 bn and EUR 1.9 bn respectively were, as usual, considerably below the corresponding figures for offices and retail premises.

Property financing portfolio increases slightly

As at 30 June 2025, the portfolio of property loans granted by the vdp member banks totalled EUR 1,029.5 bn. This was 0.4% higher compared with 31 December 2024. At EUR 894.4 bn (86.9%), properties located in Germany made up by far the greater share of the financing volume.

vdp index records 3.9% increase year on year

The rise in property prices in Germany continued in the second quarter of 2025. The property price index of the Association of German Pfandbrief Banks rose by 3.9% compared with the corresponding quarter one year earlier to reach 182.4 points. Measured against the first quarter of this year, a 1.0% increase was recorded.

The figures used to calculate the vdp index have been collected by vdpResearch every quarter since 2010. They track price developments on the entire German market for residential, office and retail properties and – unlike other price indices – are based on an analysis of actual property transaction data from more than 700 credit institutions.

As in the previous quarters, the price increase in the second quarter was chiefly attributable to residential property prices. These went up by an average of 4.1% year on year and 1.1% quarter on quarter. Although somewhat lower by comparison, growth in commercial property prices, which comprise office and retail property prices, was also significant, at 2.9% year on year and 1.0% quarter on quarter.

Property prices have gone up for the fifth consecutive quarter – and prices for residential properties are still driving the trend.
Jens Tolckmitt

“The recovery phase on the property market is continuing,” vdp Chief Executive Jens Tolckmitt reported. “Property prices have gone up for the fifth consecutive quarter, and prices for residential properties are still driving the trend. Residential property price momentum picked up again recently, clearly as a result of the extremely tense situation on the housing market.”    He added that, at a time when building completions recently dropped significantly, more and more prospective buyers are showing interest in the small number of residential properties on the market. This is pushing prices up further.

Residential properties: jump in prices for multi-family houses

The overall growth in residential property prices of 4.1% year on year was mainly driven by the trend in prices for multi-family houses, which increased by 5.6% compared with the second quarter of 2024. Prices for owner-occupied housing, which is to say single-family houses and condominiums, rose by 2.6% year on year. Comparison with the immediately preceding quarter presented a similar picture. At 1.3%, the price increase for multi-family houses was noticeably higher than for owner-occupied housing (0.8%).

The ever-worsening housing shortage also caused rents under new contracts for multi-family houses to rise further in the second quarter of 2025. However, at 3.5% year on year, the increase was somewhat less dynamic than in the previous quarter (4.3%). Measured by the vdp index for cap rates, returns on rental properties fell by 1.9% year on year as rent increases were relatively modest compared with price growth.

The housing shortage will likely cause residential property prices and rents to rise further in the trend.
Jens Tolckmitt

The new federal government’s initiative to speed up housing construction (“Bau-Turbo”) is an important first step, Tolckmitt pointed out. He added, however, that the creation of new housing will take time and requires other impulses besides. “This means that the housing shortage is going to be with us for at least several years more, and will likely cause residential property prices and rents to rise further in the trend.” That said, just how long the current, very sharp increase in prices and rents will last is difficult to forecast at present, Tolckmitt remarked.

Housing in top 7 markets: Munich and Frankfurt am Main see greatest increases

In the second quarter of this year, residential property prices in Germany’s top 7 cities rose somewhat more strongly than in the country as a whole. In Berlin, Cologne, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart, price growth for residential properties came to an average of 5.5% compared with the corresponding quarter one year earlier. Munich and Frankfurt am Main saw the strongest rates of increase, namely 6.5% and 6.4% respectively. The lowest year-on-year price increase was calculated for Stuttgart (3.0%).

Compared with the immediately preceding quarter, Düsseldorf (2.0%) and Frankfurt am Main (1.7%) recorded the strongest growth rates among the seven metropolitan areas. On average, residential property prices in the top 7 cities rose by 1.5% between the first and second quarters of this year.

The housing shortage in Germany and the attendant rise in rents were especially evident in the metrololitan areas. Rents under new contracts rose by an average of 4.3% in the seven major metropolitan areas compared with the corresponding quarter one year earlier. Düsseldorf and Frankfurt am Main reported rent increases of 5.0% and 4.9% respectively, whereas the smallest increases were recorded in Cologne and Stuttgart at 3.6% and 3.4% respectively. Returns as measured by the vdp cap rate contracted on average by 1.6% in the top 7 cities, and saw changes of between -2.4% (Cologne) and +0.1% (Stuttgart).

Commercial properties: prices and rents rise in lockstep

The rise in commercial property prices to the tune of 2.9% compared with the second quarter of 2024 consisted of price increases both for office properties (3.3%) and for retail premises (2.0%). Compared with the first quarter of 2025, too, prices for offices advanced more strongly (1.1%) than for retail properties (0.6%). The overall price level for commercial properties rose by 1.0% quarter on quarter.

Rents under new contracts for commercial properties followed a similar trajectory to that for prices. Office properties recorded an average rent increase of 3.5% year on year, while retail properties saw lower growth of 2.1%. Returns as measured by the vdp cap rate index rose by 0.3% year on year for offices and 0.2% for retail properties. Quarter on quarter, returns contracted by 0.1% for offices and 0.2% for retail properties.

Developments on the commercial property market have not yet stabilized as much as on the residential property market.
Jens Tolckmitt

 “Commercial property prices, too, have become more stable over the last several quarters and again show signs of an upturn,” Tolckmitt commented.  Nevertheless, he added, developments on the commercial property market have not yet stabilized as much as on the residential property market, as the persistently low number of transactions, for example, demonstrates. So far, the market has been focussing heavily on energy-efficient commercial properties in prime locations. The fact that the economc recovery has not yet got underway as well as the ongoing trade conflicts and the geopolitical crises remain potential sources of stress and uncertainty for the commercial property market, Tolckmitt concluded.

Since January 2024, the EU taxonomy has imposed stricter requirements on financial market enterprises and large business companies. This has given rise to extra environmental goals and further reporting obligations. In order that credit institutions can continue to check their taxonomy compliance clearly and transparently when providing finance, the Association of German Pfandbrief Banks (vdp) and Drees & Sommer – a company which specializes in consulting services in the fields of construction, real estate and infrastructure – have updated the top 15 percent benchmarking, last published in October 2023. In addition to the need to adapt to the changing regulations, a new asset class of hotel buildings has been added to the analysis framework. So, the benchmarking now covers all major asset classes of the German market.

“Many banks and credit institutions are still struggling to keep track of the maze of regulations and to demonstrate the sustainability of their economic activities in face of the constantly changing stream of new requirements. The top 15 percent benchmarking criteria provide the necessary transparency and serve as a guide for the members institutions of the Association of German Pfandbrief Banks (vdp) and other financial service providers,” says Matthias Fischer, Deputy Division Manager in the Real Estate Valuation Department of vdp. Top 15 percent eligibility is based on the EU Taxonomy Regulation and the scope of ’acquisition and ownership of buildings.

A building is considered taxonomy-compliant if, among other factors, it is in the top 15 percent of the national or regional building stock with regard to primary energy demand. In their annual benchmarking study, vdp and Drees & Sommer have calculated the metrics which are necessary to verify taxonomy compliance for the third year in succession.

New: Benchmarks for Hotel Buildings

“To take the changed regulations into account and define the top 15 percent criteria as precisely as possible, we have further refined our methods. We have, for example, added new carbon emissions intensity metrics and hotel buildings as an additional asset class,” explains Claudio Tschätsch, who is responsible for ESG and Sustainable Finance issues at Drees & Sommer. The updated study therefore ensures that credit institutions are fully up to date in the documentation of their taxonomy compliance and that they fulfill the requirements as completely as possible. In addition to its fundamental recommendations, the study also contains detailed and transparent criteria for the asset classes Residential, Office, Retail, Logistics and Hotel. The analysis has been based on the requirements of national legislation and also taken into account the provisional recommendations for the revision of the EU taxonomy and the requirements on zero-emission buildings in compliance with the EU Energy Performance of Buildings Directive (EBPD).

Decisive Criterion: Energy Performance of Buildings

To be eligible for the top 15 percent of a property class, residential buildings, for example, must fulfill the requirements of the energy performance classes A+ or A, with a calculated final energy demand of 30 or 50 kWh per square meter and year respectively. Building energy performance is an essential criterion for non-residential buildings too. The relevant legislation, such as the German Energy Saving Ordinance (Energieeinsparverordnung – EnEV) and the German Buildings Energy Act (Gebäudeenergiegesetz – GEG), does not set a common overall maximum allowable threshold for all applicable and regulated building usages. Consequently, the authors of the study recommend calculating the energy performance of non-residential buildings based on asset class-specific evaluation. For office buildings, the area-specific calculated final energy demand for electricity and heating should be between 140 and 240 kWh per square meter and year, whereas the annual primary energy demand of a top 15 percent hotel building would be in a range between 213 and 233 kWh per square meter.

For more information about the top 15 percent benchmarking and a summary of the results, please consult the vdp website.

About the Association of German Pfandbrief Banks (vdp)

The Association of German Pfandbrief Banks is one of the five associations that make up the German Banking Industry Committee. It represents the most important providers of financing for residential and commercial property construction as well as the government and public sector institutions.

Rise in new lending volume, notably for residential properties

The banks which together make up the Association of German Pfandbrief Banks (vdp) extended significantly more property loans in the first quarter of 2025 than in the first quarter of 2024. The volume of property financing rose by 24.5% to EUR 36.1 bn. Compared with the immediately preceding quarter, a 19.1% increase was recorded. The positive trend at the beginning of this year was primarily driven by a marked revitalization of lending for the construction and purchase of residential properties.

Between January and March 2025, new lending for residential properties totalled EUR 24.4 bn. This was 31.9% higher year on year and 35.6% higher quarter on quarter. The volume of loans for commercial properties came to EUR 11.7 bn, which was 11.4% higher than in the first quarter of 2024 (EUR 10.5 bn). Compared with the fourth quarter of 2024, a 4.9% decrease was recorded (EUR 12.3 bn).

“The property financing market in particular picked up considerably at the beginning of this year.”
Jens Tolckmit

“Following phases of stabilization and recovery in 2024, the property financing market picked up considerably again at the beginning of 2025,” vdp Chief Executive Jens Tolckmitt commented. He added that this was particularly true of the residential property market and in this context, above all, of the segment comprising multi-family houses. Here, demand for financing had initially dropped considerably following the turn-about in interest rates in 2022, and has now experienced a pronounced increase in the first quarter of 2025 – albeit from a low level. He pointed out that, besides the volume of loans for residential properties, prices for residential properties recently also saw an increase. The development of prices and lending volumes over the remainder of this year will primarily depend, Tolckmitt said, on the long-term interest rate level, which in turn will affect investors’ return expectations. “We are currently facing a number of uncertainty factors in the environment, and it is difficult to predict their implications for the property market,” Tolckmitt remarked, and emphasized the importance of the German economy quickly returning to speed, as this would also stimulate the property market.

New lending for residential properties: considerable rise for multi-family houses

The volume of extended residential property loans, which totalled EUR 24.4 bn in the first quarter of 2025 (previous year: EUR 18.0 bn), consisted of new loans for one- and two-family houses (EUR 11.7 bn), condominiums (EUR 4.9 bn), multi-family houses (EUR 6.5 bn) and other residential properties (EUR 1.3 bn). The strongest growth in relative terms (51.2%) was recorded in financing for multi-family houses (previous year: EUR 4.3 bn). Each of the other property asset classes likewise saw doubt-digit growth rates.

Commercial property loans: lower demand for offices than at the start of 2024

Totalling EUR 11.7 bn, commercial property loans were in line with the average for the preceding quarters. Thus, lending in this segment remained rather subdued on the whole. The volume of new loans for retail properties increased from EUR 2.5 bn in the first quarter of 2024 to EUR 3.7 bn, thereby reducing the gap vis-à-vis the nominal volume of loans extended for office properties, which totalled EUR 4.3 bn in the quarter under review (previous year: EUR 5.8 bn). This was followed by loans for other commercial properties (EUR 2.0 bn), hotels (EUR 1.4 bn) and industrial buildings (EUR 300 million).

Property financing portfolio proves stable

As at 31 March 2025, the portfolio of property loans extended by the vdp member banks totalled EUR 1,028.4 bn. This was up slightly on the immediately preceding quarter (31 Dec. 2024: EUR 1,025.1 bn). At around 87%, properties located in Germany accounted for by far the greater share of the financing volume.

vdp index rises 3.3% year on year in the first quarter of 2025

Property prices in Germany began 2025 the way they ended 2024: with an increase. The property price index of the Association of German Pfandbrief Banks (vdp) rose to 180.5 points in the first quarter of this year, exceeding the level for the first quarter of 2024 by 3.3%. The index recorded growth of 1.2% compared with the fourth quarter of 2024.

The figures used to calculate the vdp index have been collected by vdpResearch every quarter since 2010. They track price developments on the entire German market for residential, office and retail properties and – unlike other price indices – are based on an analysis of actual property transaction data from more than 700 credit institutions.

The main driver behind the price gains in the first quarter of 2025 were residential property prices, which rose by 3.6% compared with the first three months of 2024. Compared with the fourth quarter of 2024, the increase came to 1.2%. Commercial property prices, comprising prices for office and retail properties, likewise saw a positive movement, rising by 2.3% year on year and 1.0% quarter on quarter.

“Though positive, the price trend at the start of the year should not be overestimated.”
Jens Tolckmitt

“Property prices in Germany were able to take advantage of the upswing from the year before and started 2025 with increases across the board,” vdp Chief Executive Jens Tolckmitt commented. However, he cautioned that we should bear in mind that some potentially market-relevant announcements emerged only towards the end of the first quarter which are not yet reflected in the first-quarter index data. As examples, he cited the threat of trade conflicts and the announcement of debt-financed investments in Germany. “Though positive, the price trend at the start of the year should not be overestimated.” Especially as the transaction volume is still subdued – particularly on the commercial property market. He also remarked that the development seen during the last few quarters continued in the months January to March of this year. “However, it remains to be seen whether prices in the second quarter can confirm the clear upward trend.”

Residential properties: Considerable price growth for multi-family houses

The 3.6% increase in residential property prices against the corresponding quarter one year before is primarily attributable to the development in prices for multi-family houses, which rose by 4.8% in this period. Owner-occupied residential properties, which include single-family houses and condominiums, saw prices rise by 2.3% compared with the first quarter of 2024. At +0.7%, the price momentum for owner-occupied residential properties was noticeably lower than for multi-family houses (+1.7%) compared with the immediately preceding quarter. Overall, residential property prices rose by 1.2% compared to the fourth quarter of 2024.

Given the ever-increasing housing shortage, rents under new contracts for multi-family houses continued to rise at the start of 2025. The rate of increase amounted to 4.3% year on year. Measured by the vdp cap rate index, returns on rental properties fell by 0.4% year on year. This represents the first decline since the second quarter of 2022 and is due, Tolckmitt pointed out, to growing investor demand for multi-family houses and the associated price increases, which could not be fully offset by rent increases.

“The housing policy challenges facing the new Federal Government could hardly be greater.”
Jens Tolckmitt

“The housing shortage is becoming increasingly severe. The housing policy challenges facing the new Federal Government and the Federal Building Ministry could hardly be greater. We urgently need fast and effective stimuli to boost housing construction,” Tolckmitt said emphatically, adding that the coalition agreement contains promising approaches to this. “At the end of the day, what counts are the implementation and the outcome. We wish the new Federal Building Minister Verena Hubertz every success and look forward to continuing our exchange of ideas and cooperation with her and the team at the ministry.”

Housing in top 7 cities: Greater price momentum than in Germany as a whole

In the first quarter of 2025, residential property prices in the top 7 cities rose with somewhat greater momentum than in Germany as a whole. On average, residential property prices in Berlin, Cologne, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart advanced by 4.6 % compared with the first quarter of 2024.

Among Germany’s top 7 cities, the strongest year-on-year price growth for residential properties was recorded in Frankfurt am Main and Cologne (+5.2% in each case). Stuttgart saw the lowest growth rate (+1.9%). Also on a quarterly basis, Baden-Württemberg’s capital was unable to keep pace with the six other metropolitan areas, with a price increase of 0.9%. The average rate of growth for the top 7 cities was +1.8% quarter on quarter, with Frankfurt am Main and Berlin leading the pack with +2.6% and +2.0% respectively.

Rents under new contracts in multi-family houses continued to rise in all seven metropolitan areas – on average, the increase came to 4.4%. Cologne recorded the lowest rental growth at 2.4%. In contrast, the rate of increase in Germany’s capital was more than twice as high at 4.9%. Frankfurt am Main and Stuttgart came next, with rents under new contracts rising by 4.7% in both cities. Returns on rental properties, as measured by the vdp cap rate index, fell by 0.6% as an average for the top 7 cities compared with the corresponding quarter one year before, with a fairly wide spread. Whereas Cologne and Stuttgart were the outliers at -2.9% and +2.6% respectively, changes in returns in the five other cities were between -0.9% and +0.4%.

Commercial properties: Pick-up in prices for office and retail properties

The 2.3% increase in commercial property prices compared with the first quarter of 2024 resulted from positive price trends recorded for both office and retail properties. Office prices rose by 2.4% in the first quarter of 2025, while prices for retail properties went up by 2.0%. In a price comparison with the immediately preceding quarter, the increase for office properties (1.1%) was also somewhat higher than for retail properties (0.6%). These two growth rates accounted for a 1.0% rise in commercial property prices quarter on quarter.

Office and retail properties also saw similar developments in rents under new contracts. Office rents climbed by 3.1% and rents for retail properties by 2.3% – in both cases compared with the corresponding quarter one year before. Quarter on quarter, the increase came to 1.0% and 0.4% respectively. Returns as measured by the vdp cap rate index rose year on year by 0.6% for office properties and by 0.3% for retail properties. Quarter-on-quarter growth rates for office and retail properties were negative for the first time since 2021 and 2019 respectively, standing at -0.1% and -0.2% respectively.

Outlook: Onus on new Federal Government to improve housing supply

Looking to the remainder of this year, Tolckmitt expressed a nuanced view: “Even though we have seen slight growth rates in commercial properties for the fourth quarter in succession, we cannot yet be sure of a sustained upswing phase on the commercial property market – economic and geopolitical developments remain factors of uncertainty,” Tolckmitt emphasized.

“We expect rents under new contracts and property prices to keep on rising.”
Jens Tolckmitt

 Tolckmitt is more optimistic with regard to the residential property market. “The still very high and unsatisfied demand for housing will continue to stabilize the residential property market. We expect rents under new contracts as well as prices for both multi-family houses and owner-occupied residential properties to keep on rising.” The excess demand in the housing market will only be mitigated in the medium term, and only if there is a committed, supply-oriented political impetus for new housing construction,” Tolckmitt pointed out.