The Spring 2026 Report by the German Council of Real Estate Experts provides a nuanced assesment of the current market situation and does not signal an rapid recovery – but neither does it anticipate a continued market slump. Instead, it characterizes the market as being in a phase of consolidation following the disruptions of recent years. At approximately €23.21 billion, the transaction volume for commercial real estate in 2025 remained signifcantly below the 2019–2021 peak, reaching only about one-third of prior levels. At the same time, the hoped-for broad-based recovery has yet to materialize despite interest rate cuts.
The report explicitly refers to a consolidation phase in which structures and valuation standards are being readjusted. In the office segment in particular, it is clear that pricing between buyers and sellers remains difficult and that in many places balance sheet write-downs are necessary before transactions can be realized.
In addition, there has been a significant qualitative shift: sustainability and energy efficiency are no longer mere additional criteria, but key determinants of rentability, financing, and liquidity. Properties that do not meet ESG requirements or cannot be transformed are structurally losing their market appeal.
Overall, the spring report describes less of an economic dip than a phase of structural adjustment: valuation standards, investor behavior, and risk assessment are being realigned. The market is not returning to the environment of low interest rates, but is gradually establishing a “new normal” with lower transaction volumes, higher quality requirements, and increasing divergence between market segments – particularly between sustainably transformable core properties and structurally challenged portfolios.
Macroeconomic environment: Structural weaknesses overshadow economic momentum
The Spring Report 2026 explicitly places the development of the real estate markets in a macroeconomic environment that continues to be characterized by weakness and uncertainty. In the macroeconomic environment, Germany remains in a phase of stagnation. Despite monetary easing (interest rate cuts by the European Central Bank), there has been no noticeable upturn in investment activity. The report points out that structural uncertainties, weak economic development, and ongoing pricing difficulties continue to weigh on market activity.
At the same time, the report emphasizes that the reluctance to invest cannot be explained solely by interest rates or the economic situation. In connection with structural location factors, it cites in particular the high tax and social security burden, regulatory complexity, and political uncertainties, which make investment difficult and reduce predictability.
The current market situation is therefore less a temporary phase of weakness than an expression of fundamental location issues that cannot be resolved by interest rate cuts alone. A purely economic recovery will not be enough to stabilize the real estate market in the long term. Rather, structural reforms, reliable and investment-friendly framework conditions, and a noticeable reduction in regulatory complexity are crucial. Without greater planning and financing security, institutional investors are likely to be hesitant to return.
Investment market 2025/2026: Adjustment process in transaction activity
As shown above, the investment market for commercial real estate will remain subdued in 2025. There are no signs of a dynamic recovery as yet.
The focus is less on volume and more on the continuing difficulties in pricing. The report describes a persistent discrepancy between buyer and seller expectations, particularly in the office segment. While market-driven prices are once again being achieved in the “super-core” segment—i.e., for first-class, long-term leased, and energy-efficient properties in prime locations—there are considerable valuation differences outside this segment.
A major obstacle is the balance sheet valuations of many institutional owners from the low interest rate phase, which no longer correspond to the current market environment. According to the report, increased sales activity can only be expected once further devaluations have been made. Market liquidity is therefore directly dependent on the adjustment of valuation assumptions. The investment market is undergoing a calibration process in which return expectations, risk premiums, and exit assumptions are settling at new levels.
At the same time, the investor landscape is changing. Institutional investors continue to act selectively, while family offices and private capital are playing a stabilizing role in individual segments, particularly in large-volume office transactions. These investors often pursue value-enhancing strategies. Instead of holding long-term stable portfolios, they invest specifically in properties with development or transformation potential – for example, through modernization, ESG upgrades, or repositioning in the market. This shifts the focus from low-risk core investments to active value creation.
Large-volume, broadly diversified core portfolio purchases, which dominated the market during the low-interest phase, remain rare. Transaction activity is becoming more selective and is increasingly influenced by individual investment decisions.
Overall, the investment market is not in a classic recovery phase, but rather in a process of adjustment. Valuation standards, capital sources, and risk assessments are being rebalanced. A return to the volumes seen during the peak phase is not expected in the short term; rather, a market environment with selective capital allocation and a clear focus on quality is establishing itself.
Valuation standards in 2026: Sustainability as a liquidity factor
A key finding of the report concerns the changing role of sustainability and energy efficiency in the valuation process. ESG criteria no longer merely regulatory considerations, but are increasingly shaping the market dynamics. They directly influence the rentability, financial viability, and saleability of a property.
Properties that do not meet the increasing requirements for energy efficiency and climate neutrality are under double pressure: on the one hand, their rental prospects are deteriorating, and on the other hand, financing and capital requirements are increasing. The report makes it clear that these factors are directly reflected in valuation discounts (p. 91 ff.).
Sustainability is thus moving from being an “add-on” to an integral part of valuation. A property‘s liquidity increasingly depends on ist ability to be transformable and remain compliant with evolving regulatory standards. ESG readiness affects not only returns but also tradability and long-term investment attractiveness.
In this context, the report describes a new market equilibrium:
- Transaction volumes remain below the peak level.
- Quality requirements are increasing.
- Differentiation based on location, asset use, and ESG compliance is increasing.
- Active asset management is becoming more important for value preservation.
Selected market segments at a glance
a. Residential real estate
The report describes ongoing tension in the residential segment. The housing market has been in a protracted adjustment phase since the sharp rise in construction and financing costs. Construction activity remains subdued because the significant decline in building permits in previous years is now becoming apparent in completions with a time lag. There are often several years between approval and actual completion, meaning that the weak approval activity in 2023 and 2024 will continue to limit the supply of housing in 2025 and 2026.
After significant price declines as a result of the interest rate turnaround – -8.4% in 2023 and -1.5% in 2024 – purchase prices have been showing a moderate recovery since 2025; by the third quarter of 2025, they were 3.3% above the same quarter of the previous year. The report attributes this development to, among other things, the continuing shortage of housing and high basic demand, which have prevented an abrupt market collapse as seen in classic bubble markets.
At the same time, the supply gap remains the central problem: high construction and financing costs, economic pressures on the construction industry, and regulatory conditions are slowing down new construction. For 2026, therefore, regional tensions are expected to continue to increase in some areas.
b. Office real estate
In contrast, the office segment is undergoing a profound structural adjustment. The report points to changing work models and technological developments that are having a lasting impact on space requirements. Hybrid working models and digital transformation do not necessarily result in an outright decline in demand, but they are fundamentally reshaping requirements in terms of location, quality, flexibility, and technical amenities of office space.
At the same time, there is a differentiated vacancy trend. While high-quality, well-connected, and future-proof properties remain comparatively attractive, pressure is increasing on properties with functional or energy deficits. The risk of structural vacancies is increasing, particularly in secondary locations.
The report therefore emphasizes the growing importance of active portfolio management. Maintaining value in the office segment is increasingly linked to modernization, conversion measures, or conceptual realignment of space. The segment is thus less affected by short-term economic fluctuations than by a long-term structural transformation in demand for space.
In contrast to the residential segment, which is primarily characterized by a shortage of supply, the office segment is dominated by qualitative adjustments, transformability, and third-party use options.
c. Hotel real estate
In the hotel real estate segment, demand has largely normalized following the severe contraction during the pandemic years. Overnight stays are returning to pre-crisis levels, although the trend varies: leisure and city tourism are recovering more strongly, while business travel remains structurally below pre-crisis levels.
At the same time, operators continue to be under economic pressure, particularly from rising personnel and energy costs. Investors are therefore focusing more closely on operator creditworthiness, contract structure, and location quality. Market stability in the hotel sector is closely lionked to operator resilience and the strength of the underlying demand base.
Overall, the segment is less affected by a structural slump in demand than by economic sensitivity to cost developments and cyclical fluctuations. The development of hotel real estate therefore remains closely linked to the economic performance of operators.
d. Retail real estate
The retail market remains characterized by structural changes. The report describes continued polarization within the segment. Local supply-oriented locations and retail parks with food-oriented anchor tenants are proving to be comparatively robust. In contrast, inner-city locations and classic department store concepts continue to be under pressure to adapt.
The structural influence of online retail continues to have an impact, even though brick-and-mortar concepts are increasingly adapting. Mixed uses, space reductions, and conversions are gaining in importance. In many city center locations, the integration of residential, restaurant, and service uses is becoming more prominent.
The report thus emphasizes the growing importance of active portfolio development in the retail segment as well. The value of individual properties increasingly depends on their adaptability to changing consumption and usage patterns.
Strategic outlook: 2026 as a year of setting the course
The 2026 Spring Report does not describe a year of rapid recovery, but rather a phase of strategic decisions. Market participants are faced with the task of
- recognizing valuation realities,
- actively addressing transformation needs (especially with regard to ESG and utilization concepts),
- integrating regulatory requirements at an early stage,
- and focusing investments more strongly on quality and the future.
The key question is no longer when the low interest rate environment will return. Rather, it is how investors, project developers, and portfolio holders will adapt their portfolios to changed valuation and financing conditions.
The real estate industry is thus facing less of a cyclical recovery and more of a structural realignment. Transparency, transformability, and strategic planning are becoming decisive success factors in a market that has become permanently more demanding.
In a market defined by valuation adjustments, ESG requirements and segment-specific transformation dynamics, legal precision and strategic judgment are critical. We advise investors, project developers, portfolio holders, and institutional market participants throughout the entire real estate life cycle – from structuring and implementing complex transactions to ESG and transformation issues to actively supporting repositioning and conversion processes. Through close cooperation with our other practice groups, we provide integrated legal advice and assist our clients in not only managing structural changes, but also leveraging them strategically.
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