Positive start to the year for property prices

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.