The German Real Estate Market 2025 | 1

The German economy continues to struggle. In 2024, real gross domestic product declined by 0.2%. Uncertainty surrounding the economic outlook in Germany and abroad continues to weigh heavily on production, foreign trade, investment, and private consumer spending. The ifo Business Climate Index rose by 0.4 points to 85.1 in January 2025, but despite this slight improvement, it remains below the previous year’s level.

Inflation has recently stabi­lized at a compar­a­tively low level. In January 2025, the inflation rate stood at 2.3%, slightly below the previous month’s level. Services continued to be the main driver of price increases, while energy prices declined. Rising wages are expected to support private consumption in the coming months. As inflation approached the European Central Bank (ECB)’s target, it lowered its key interest rate again in February 2025 to 2.75%. Depending on economic data, further interest rate cuts may follow in the course of the year to support the economy and safeguard the inflation target.

The labor market was more subdued in 2024, with the unemployment rate rising to an annual average of 6.0%. Due to seasonal factors, the unemployment rate increased further to 6.4% in January 2025. Weaker order volumes in some sectors reduced labor demand and led to an increase in short-time work.

For 2025, the federal government expects moderate GDP growth of 0.3% and an average inflation rate of 2.2%. Following the federal election, the incoming government is expected to focus on strength­ening the economic environment through targeted measures to promote investment, dereg­u­lation, and the reduction of bureau­cracy to enhance Germany’s attrac­tiveness as a business location and stimulate market activity.

It remains unclear how geopo­litical uncer­tainties and the trade policies of the new U.S. admin­is­tration will affect economic growth. If the outlook improves, an economic recovery could begin later this year.