Caution Prevails in German Real Estate Market: Spain and Italy Grab Investors' Attention
German property sector surges ahead
Investors are taking a conservative approach towards the German real estate market, a stance that's noticeable even on a global scale. According to Susanne Eickermann-Riepe, Chair of the European World Regional Board (EWRB) of the Association of Real Estate Professionals and Surveyors RICS, Germany is playing catch-up.
The economic, political, and structural factors surrounding the German market have instilled a sense of caution among investors. Despite some positive signals, this wariness can be attributed to factors such as heightened political volatility, economic sensitivity, affordability concerns, and comparative sentiment.
The political landscape in Germany is uncertain, characterized by the formation of a new federal government and ongoing discussions about policy changes affecting trade, inflation, and interest rates. Moreover, the threat of increased tariffs from the U.S., as well as uncertainties surrounding the new government's policies, are fueling investor anxiety.
Meanwhile, Germany's real estate market, while exhibitng a resurgence in transaction volumes (up 26% in Q1 2025), remains sensitive to macroeconomic fluctuations. Concerns about the European Central Bank's interest rate cuts and ongoing inflation add to the uncertainty about the sustainability of market recovery.
Affordability and supply constraints in Germany are also starting to dampen demand, despite the rising prices. Analysts predict a 3% increase in home prices in 2025, a figure lower than earlier forecasts, due to escalating affordability concerns for potential buyers.
On the other hand, Spain and Italy offer more appeal to some investors. These countries benefit from tourism sectors that have recovered well as COVID-19 effects diminish, driving demand for hotels, apartments, and retail spaces. Additionally, they have promising sectors like tourism and hospitality, as well as competitive rental markets, particularly in urban centers.
Investors are increasingly attracted to these less-expensive entry points and favorable policies, such as tax incentives, in some cases. Spain and Italy also offer a more favorable regulatory environment for rental properties, making these markets more appealing to risk-tolerant investors.
In summary, investors remain cautious about the German real estate market due to factors including political uncertainty, economic volatility, and affordability concerns. Meanwhile, Spain and Italy attractions like tourism-driven recovery, targeted investment incentives, and competitive rental markets are contributing to their increasing appeal to investors.
| Factor | Germany | Spain/Italy ||----------------------|--------------------------------------|------------------------------------|| Political uncertainty | High (new government, tariffs) | Moderate to lower || Economic volatility | Moderate (inflation, rate cuts) | Moderate || Affordability | Tightening, demand softening | Varies, often more affordable || Investment incentives | Limited | Higher (tax breaks, incentives) || Sector strengths | Export, construction, banking | Tourism, hospitality, rentals |
Investors are cautious about the German real estate market due to factors such as heightened political uncertainty, economic volatility, and affordability concerns, whereas Spain and Italy offer more appeal with their recovering tourism sectors, attractive investment incentives in the form of tax breaks and favorable rental market policies, and competitive pricing in urban centers, making them more attractive to risk-tolerant investors who are looking at opportunities in real-estate and investing.
The political landscape in Germany is characterized by the formation of a new federal government and ongoing discussions about policy changes affecting trade, inflation, and interest rates, while Spain and Italy have tourism-driven recoveries that have driven demand for hotels, apartments, and retail spaces, offering a safer and more appealing investment environment compared to the German market.
