Residential real estate market

Market sentiment and trends

Prices on the residential real estate market have recently come under pressure. The momentum of recent years, with purchase prices rising significantly in some cases and yields falling, has reversed. Since mid-2024, the temporary fall in residential property prices appears to have slowed. Prices for detached and semi-detached houses and condominiums in particular are recovering and rising again, which is due not least to the stabilization of interest rates.

Financing conditions remain difficult

The high equity requirement remains the biggest obstacle to purchasing. In view of the current financing and construction cost conditions, the available purchase budget is limited for many private households.

For institutional investors, project developers, housing companies and cooperatives, the risk in terms of the expected or required return also remains high. At the same time, complex financing conditions make it difficult to realize projects - high debt ratios in particular continue to be uneconomical.

As a result, the volume of construction and transactions has fallen significantly over the last two years. However, the current sideways trend in interest rates could have a stabilizing effect and increase the resilience of calculations again.

Market players therefore expect that the significantly lower interest rate level compared to 2023 will have a positive impact on the residential real estate market and that demand and supply could continue to slowly recover in the future.

Completions slump, building permits also down significantly

Initially, however, the figures on the supply side will collapse significantly: With only 2,600 completed residential units in the city and surrounding area in 2024, Hanover will record a low in completions compared to the previous year (minus 55%), while building permits will also fall sharply (minus 26%).

It remains to be seen how quickly measures such as the new amendment to the Lower Saxony Building Code (NBauO) or the planned law to accelerate residential construction and secure housing (the so-called "construction turbo") will take effect and noticeably boost residential construction, both in new builds and conversions of existing properties

Multiples stabilize

The difficult-to-assess situation in the residential segment becomes particularly apparent when looking at the multiplier, which is used as an important indicator in the highly professionalized market for apartment buildings that is relevant for investors. Following the further slump in multiples from 26 to 22.5 last year, this trend slowed down and peaked at 23 in 2025.

A key reason for the continued subdued market development is the wait-and-see attitude of many sellers. Particularly in the case of existing properties, they are sometimes hesitant in anticipation of new energy efficiency requirements and building standards. The new German government has announced that it will once again revise the Building Energy Act. The recently completed amendments to the NBauO represent a further important step towards facilitating and accelerating conversions in existing buildings and must now prove themselves in practice. In the area of new-build properties, on the other hand, the pricing process appears to be stabilizing more quickly.

Over the course of the year, the developments described above could lead to a slight increase in demand for properties and make market expectations more optimistic again overall.

Rental market under pressure

The rental market is still under additional pressure, as potential buyers are still waiting in the current tense market phase and remain as tenants for the time being. As a result, rental demand continues to rise and market participants expect rents to increase - both for new builds and existing properties. In line with this trend, rents rose again compared to 2024, reaching EUR 18.20/sqm for new builds and EUR 14.40/sqm for relet properties in prime locations this year.

To classify the rents shown in the real estate market report: The current rent index of the city of Hanover from 2023 shows a rent range of EUR 10.99 to EUR 15.35/sqm cold rent for good residential locations for new apartments (built in 2010 or later) with more than 85 sqm of living space (further information and more differentiated evaluations for different construction age classes, sizes and locations for all 21 municipalities in the region can be found at www.hannover.de/mietspiegel ).

Measures by the public sector

A reduction in bureaucracy, accelerated approval procedures and shorter deadlines are proposed or implemented in the current amendments to the Building Code and the Lower Saxony Building Code and are intended to give a new boost to residential construction in particular. Whether and how quickly these changes will have an impact remains to be seen.

The federal government is significantly increasing its funding for both social housing construction and urban development over the next few years. In addition to the extensive subsidy programs of the state of Lower Saxony, the state capital of Hanover and the Hanover region offer additional opportunities to promote the creation of social housing with their housing subsidy program - for both low- and middle-income households.

With the WohnBauInitiative (WoBI), the Hannover Region supports the towns and municipalities in the region in providing housing and promotes more and denser housing construction, particularly in the multi-family housing market segment. To this end, the initiative uses various instruments to support the municipalities in the region in the areas of internal development and the activation of existing buildings as well as land activation strategies.

Politicians and administrations in the municipalities are sensitized to the topics of multi-family house construction, higher densities and sustainability (heat supply). Planning authorities and the local real estate industry are working together in networks to discuss the future of modern housing construction, which should be modern, affordable and sustainable.

The state capital of Hanover is also aiming to extend and expand its housing initiative with the regional housing industry and to update the housing concept until 2035.

Outlook: Where is the residential real estate market heading?

The trends and effects outlined above are not fully visible in current and long-planned projects, as these projects are already under construction and financing has often still been secured on the old terms.

The complex financing and demand situation, high construction costs, unstable supply chains and a shortage of skilled workers mean that new projects and, in some cases, the development of further construction phases of already planned construction areas are being delayed. As a result, there is a lack of urgently needed apartments in the future, which is putting additional pressure on the rental market in particular.

As soon as the trends described above become clearer and more firmly established, both investors and buyers can be expected to become more active on the regional market again. Initial adjustments to price expectations on both the supply and demand side are already apparent. The cuts and stabilization of key interest rates implemented by the ECB since mid-2024 have generally increased the affordability of real estate again.

Current forecasts do not anticipate further price declines for existing and new-build properties. Distress sales of core projects are also not expected. However, the crisis among project developers is not yet over. Revaluations may continue to occur for both existing properties in need of refurbishment and new-build project developments if the combination of high construction costs, interest rates and stricter exit factors means that calculations based on previous assumptions no longer work out.

The interest rate reductions since mid-2024 have increased the affordability of residential real estate.