Commercial Property Finance

The general economic slowdown in Germany at the beginning of 2025 was worsened by various uncertainties, particularly the actions taken by the United States in the form of protectionist trade policies. Nevertheless, the economic forecast is becoming more optimistic: leading economic research institutes have raised their GDP growth projection for 2025 from 0.1% to 0.3%. Growth resulted from private consumption, which benefited from rising real incomes and a declining savings rate. Exports also rose noticeably, driven by preemptive effects ahead of newly expected U.S. tariffs. Thanks to fiscal stimulus and low interest rates, investment activity is picking up, as reflected in increasing order volumes, transactions, and building permits. The labor market has so far remained largely stable, although the unemployment rate has increased due to the general weakness in the economy.

Lending in the commercial real estate sector remained stable, increasing by 11.4% to EUR 11.7 billion compared to EUR 10.5 billion in the same period last year. The weak economic development, combined with structural changes in the office real estate sector, is leading to a slowdown in overall market activity. Given the shortage of skilled labor, remote work remains an important benefit for employees, leading many companies to plan reductions in office space, subletting, or temporarily pausing planned leases. ESG-compliant office space in central locations continues to be in strong demand, while interest in less attractive properties in peripheral areas has noticeably declined. While loan commitments in the office segment decreased, they rose in the retail and hotel property segments compared to the same quarter of the previous year.

Source: vdp based on information provided by vdp member banks