City Survey
Q4 2024
Macroeconomic environment
Economic situation brightens slightly, challenges remain
Germany’s GDP has shrunk by about 0.2 percent in 2024. In the course of 2024, the inflation rate continued to decline and amounted to an annual average of around 2.2 percent. Although wage incomes increased by around 4.7 percent compared to the previous year, the recovery in private consumption failed to materialize, partly because part of the increase in purchasing power was saved. The poor order situation of companies and thus the lack of demand for goods is weighing on the economy. Despite the gradual recovery of global economies and rising demand, export-oriented German industry has so far benefited little from this. German exports of goods are increasingly decoupling from global economic developments, which can be traced back to structural causes. Manufacturing companies in particular are feeling a significant loss of competitiveness, especially in non-European markets. One possible ray of hope is that the restart of private consumption and targeted measures by the German government to promote investment could serve as potential impulses for economic stabilization. For 2025, there should therefore be a slight upturn in the economy again. Experts currently expect moderate GDP growth of 0.4% (Consensus Economics).
Economic growth and inflation (in % y-o-y)
Sources: Oxford Economics (January 2024), Colliers
Forecast from Q1 2025
In 2024, major central banks, including the European Central Bank (ECB) and the U.S. Federal Reserve (Fed), cut interest rates several times to support the economy. The ECB has lowered its key interest rate to 3.15%. Currently, three more interest rate hikes by the ECB are expected for 2025. These monetary policy measures are intended to stimulate the economy, but have so far had only a limited impact on the competitiveness of German industry.
Interest rate trend (in %)
Sources: Oxford Economics (January 2024), Colliers
Forecast from Q1 2025
Although financing conditions in Germany remained tense in 2024, they improved steadily over the course of the year.
The 10-year German government bond yielded around 2.2 percent at the end of 2024, which is roughly in line with the annual average.
Real estate financing improved slightly in the course of 2024. The assessment of new business and general financing conditions also improved, but remained at a moderate level overall. Nevertheless, the slightly better market conditions are once again creating a more stable and future-oriented investment environment for sustainable investment decisions.
Bond and real estate yields (in %)
Sources: Oxford Economics (January 2024), Colliers
Forecast from Q1 2025
ESG: The new EU Buildings Directive (EPBD)
The new version of the EU Building Directive (EPBD) is part of the “Green Deal” and the “Fit for 55” legislative package and has been in force since May 2024. The member states must transpose the requirements into national laws and regulations by 25 May 2026. The elimination of financial incentives for fossil fuel-powered boilers will apply in most cases as early as 2025.
The requirements for the member states, which also affect the real estate industry, include the introduction of an EU-wide uniform energy efficiency class classification in the energy performance certificates and the establishment of a national database for the energy performance of buildings for the purpose of checking taxonomy conformity.
From 2028, the life cycle global warming potential must be calculated for all new buildings with a usable area of more than 1,000 m² and disclosed in the energy performance certificate. These requirements will apply to all new buildings from 2030 onwards. In addition, the “zero-emission building” is to become the new building standard from 2030. For government buildings, the requirement will take effect as early as 2028. Zero-emission buildings should, among other things, have at least 10% improved overall energy efficiency compared to the current nearly zero-energy building level, generate no greenhouse gas emissions from fossil fuels at the site and guarantee a construction method optimized for solar energy use.
In the next few years, the residential building stock, starting with the most energy-efficient buildings, is to be renovated. The milestones envisage that primary energy consumption in the entire residential building stock will decrease by at least 16% by 2030 and by at least 20-22% by 2035 compared to 2020. From 2040 onwards, a nationally determined value is to be reached or fallen below every five years.
The energy performance of the national non-residential building stock is measured using maximum thresholds. The maximum threshold values are determined on the basis of the non-residential building stock from 2020. The maximum energy performance threshold is for the worst 16% (16% threshold) and the following worst 26% (26% threshold) of the national non-residential building stock to be above this threshold. Once this has been determined, it must at least be ensured that all non-residential buildings are below the threshold of 16% from 2030 and below the threshold of 26% from 2033. Energy performance thresholds can be set as a whole or for different building types and categories.
The path to fulfilling the Paris Climate Agreement by 2050 and the associated overall goals will become much more transparent. The expectations of the legislator enable market participants to weigh up their options for action and to make an adequate risk assessment. The new framework conditions will be reflected in the transactions of the real estate markets in the near future.
In concrete terms, this means higher demands on new buildings and existing buildings for the real estate industry, which will be associated with rising costs. In addition, the price range between unrenovated old stock and renovated buildings or new buildings is becoming significantly wider. In the future, the market could prefer the renovated stock to new construction due to the life cycle consideration.