Development of the Economy and the Industry

According to the European Commission, economic growth in the EU continued in the first quarter of 2025 with a 0.3% increase in gross domestic product (GDP). However, investment fell short of expectations due to high financing costs and already significant economic policy uncertainty. Consumption, non-residential construction and exports are likely to have shown relatively strong development in the meantime. The impact of higher tariffs, increased uncertainty due to recent abrupt changes in US trade policy, and the unpredictability of the final form of the tariffs are, however, weighing heavily on the global outlook. The EU is also feeling the effects, with growth prospects having dimmed. In its spring forecast, the Commission expects GDP growth of 1.1% in the EU and 0.9% in the eurozone for 2025. According to the Federal Statistical Office (Destatis), the German economy started 2025 with GDP growth (GDP in the first quarter of 2025 +0.4% compared with the previous quarter) after still reporting negative growth at the end of 2024. Foreign trade and private consumption rose relatively strongly in the first quarter of 2025. At the same time, investment increased both in construction and in equipment compared to the previous quarter. The German economy is showing initial signs of improvement, but according to IfW Kiel, economic momentum is likely to remain restrained for some time. According to Statistics Sweden (SCB), GDP in Sweden declined by 0.2% in the first quarter of 2025, compared to the previous quarter. The decline was especially noticeable in gross fixed capital formation, while net exports rose slightly. Austrian GDP also grew only slightly in the first quarter of 2025, by 0.1%, compared to the previous quarter. The increase was supported in part by positive developments in the industry, though sectors such as hospitality and accommodation as well as transport had a dampening effect. In terms of demand, consumption growth supported the slight overall increase. For 2025, GDP growth of 0.3% is forecast for Germany (IfW Kiel) and 0.9% for Sweden (National Institute of Economic Research, or NIER), with stagnation of 0.0% expected for Austria (Austrian Institute of Economic Research, or WIFO).

Recovery in the labor market is still lagging. In Germany, the unemployment rate based on the total civilian labor force rose by 0.4 percentage points year-on-year in June 2025 to 6.2% (not adjusted for seasonal work). According to the Federal Employment Agency, while the risk of layoffs is comparatively low, it is continually increasing. According to SCB, the unemployment rate in Sweden rose by 1.0 percentage point year-on-year in May 2025 to 9.7% (not adjusted for seasonal work). According to national calculations by the Austrian Public Employment Service (AMS), the unemployment rate in Austria in June 2025 was 6.8% and thus 0.5 percentage points higher than in the previous year. Based on respective national definitions, the average unemployment rate expected in 2025 is 6.3% for Germany (IfW Kiel), 8.8% in Sweden (NIER) and 7.5% in Austria (WIFO).

Measured based on the consumer price index (CPI), inflation in Germany came in at 2.0% year-on-year in June 2025, according to Destatis. This means the inflation rate was again slightly lower than at the end of 2024. Consumer price inflation has hovered around 2% for about a year, according to IfW Kiel. Larger temporary fluctuations were mainly due to energy prices. In Sweden, the inflation rate was 0.7% in June 2025 (SCB), similar to the end of 2024. Developments in housing costs, in particular interest expenses for ownership, and lower fuel prices had a dampening effect. In Austria, the rate is likely to have come to 3.3% (Statistics Austria), once again slightly higher than at the end of 2024. Among the factors driving up inflation at the beginning of 2025 were the expiration of the electricity price cap and the increase in grid fees for electricity and natural gas. Based on respective national definitions, a CPI increase of 2.2% is expected for Germany (IfW Kiel), 0.5% for Sweden (NIER) and 2.9% for Austria (WIFO) for 2025 on average.

In response to decreasing inflationary pressure, the European Central Bank (ECB) continued its policy of lowering key interest rates, which it began in June 2024. In the first half of 2025, the interest rate for the deposit facility, which the ECB Governing Council uses to steer the monetary policy course, fell in several steps to 2.00% as of June 11, 2025. After the inflation rate began approaching the inflation target again, the Swedish Riksbank also began lowering the policy rate starting in May 2024. Since then, the rate has been reduced in several steps, most recently to 2.00% on June 25, 2025. Further slight monetary policy easing by the ECB and the Swedish Riksbank may follow later this year. In this overall environment, interest rates for construction in Germany, Sweden and Austria fell slightly in the second half of 2024, but were still considerably higher than before the interest rate turnaround of 2022. In Germany and Sweden, the decline was interrupted in the first quarter of 2025 – in Germany indirectly as a result of the debt package from the CDU/CSU and SPD. In Austria, the decline continued over the same period.

The residential real estate market is showing a mixed picture: while prices for residential property are stabilizing or rising again, the residential investment market started the new year on a positive note in Germany and relatively solidly in Sweden and Austria. On the supply side, new construction will not be able to meet housing demand in the short to medium term, so rental prices will continue their upward trend. According to empirica, quoted rents were 4.2% higher on average over all years of construction in the second quarter of 2025 (new construction 4.0%) than in the same quarter of the previous year. For 2025, Deutsche Bank Research expects overall rent increases to be similarly high as in the previous year. In 2024, existing rental contracts increased by more than 2%, and new contracts by more than 5%. According to “Hem & Hyra,” the member magazine published by the Swedish tenants’ association (Hyresgästföreningen), more than 90% of rents for 2025 had been negotiated as of March. The average rent increase until that point was 4.8%. Measured against the index for actual rental payments for primary residences as part of the consumer price index, rents in Austria also rose further from the beginning of the year and were approx. 4.1% higher in May 2025 than in the comparable previous-year month.

House prices have cooled down considerably in Germany, Sweden and Austria since their peak in 2022. The drop in prices in Germany came to a standstill in the course of 2024, and average prices are rising again. Accordingly, the empirica price index for condominiums (all years of construction) increased by 2.6% in the second quarter of 2025 compared to the same period of the previous year (new construction 1.5%). Helaba Research & Advisory expects that price increases in the residential property market will become entrenched and persist throughout the year. As early as the beginning of 2024, Sweden saw a noticeable recovery in purchase prices for tenant-owned apartments (“bostadsrätter”), which was interrupted by periods of weakness around mid-year and at the end of the year. In the first half of 2025, prices moved more or less sideways, and according to Svensk Mäklarstatistik, they were 0.2% higher in June 2025 than in the same period of the previous year. Experts at SEB, Skandinaviska Enskilda Banken, expect prices to rise by around 3% in 2025. After price declines in 2024, the residential real estate price index of the Austrian central bank (OeNB) on the basis of new and used condominiums and single-family residences in Austria show a slight 0.4% increase in the first quarter of 2025 and stagnation of 0.0% in the second quarter of 2025, in both cases compared to the previous year. According to RE/MAX, the price trend for condominiums in Austria as of the beginning of the year depends to a considerable degree on their location, with an increase expected in central locations in 2025.

Population growth continued in Germany, Sweden, and Austria in 2024 and is expected to persist. A large number of large cities and metropolitan areas are affected by housing shortages. Meanwhile, construction activity is on the decline. According to the ifo institute, the war in Ukraine has brought the long-standing boom in European residential construction to a halt. Destatis reports that 251,900 apartments were completed in Germany in 2024, a figure that was down by 14.4%, or 42,500 fewer completions, compared to the previous year. Deutsche Bank Research expects 245,000 apartment completions in 2025, while the GdW forecasts only 218,000. This will significantly fall short of the approximately 320,000 new apartments needed annually until 2030, according to the latest BBSR housing demand forecast. Existing housing shortages are hindering migration to regions with strong labor markets. Declining residential construction is not only worsening the housing shortage but also hampering further economic development, according to the Arbeitsgemeinschaft für zeitgemäßes Bauen (Institute for Sustainable Constructions). Boverket estimates that 50,300 apartments will have to be built per year in Sweden by 2034. In 2024, 48,024 apartments were completed, a figure that was down by 30% compared to the previous year. According to Boverket, only around 35,000 apartments are expected to be completed in 2025. This means that the additional annual need will not be met. The number of construction starts could, however, rise again next year given the slight improvement in the overall conditions. In Austria, approximately 46,300 apartments were likely completed in 2024 according to EUROCONSTRUCT, with a decline to 38,500 expected for 2025. According to CBRE, the limited availability of housing in metropolitan areas is expected to worsen further.

CBRE also reports that the residential investment market (50 or more residential units) in Germany grew significantly in the first half of 2025. They estimate the transaction volume at € 4 billion, around 41% higher than in the same period of the previous year. The development was driven by a very dynamic start in the first quarter of 2025. Due to macroeconomic uncertainties stemming from global trade policy, the second quarter was marked by slight reticence, according to CBRE. While demand for core and core-plus properties and portfolios remains high and continues to grow, portfolio adjustments are still taking place in the Value-add segment. A noticeable stabilization of the market can be seen in project development deals. Prime yields in the top seven cities remained stable at 3.4%. For 2025 as a whole, CBRE expects a transaction volume of € 8 to 10 billion. According to Colliers, properties worth € 6.6 billion were traded across all segments on the Swedish transaction market in the first half of 2025, representing a year-on-year increase of approx. 40%. In terms of transaction volume, residential properties were the third-largest asset class after offices and the public sector, with a share of 19%. According to CBRE, the Austrian real estate investment market saw a transaction volume totaling € 1.26 billion in the first half of 2025, 1% more than in the same period of the previous year. In the second quarter, the market proved much more active than in the first. In terms of transaction volume, residential properties were the strongest asset class with a share of 52%.

Housing policy developments in Germany so far in 2025 have included several measures and proposed laws. For example, the new German coalition government of CDU, CSU and SPD agreed in their coalition agreement to extend the rent cap until the end of 2029.  In June, the Bundestag approved this extension. Furthermore, the new minister of construction announced a bill to accelerate construction. The corresponding draft of the Act to Accelerate Housing Construction and to Secure Housing has since been approved by the federal cabinet and is now undergoing the parliamentary process. The draft budget for 2025, adopted by the cabinet and currently under discussion in the Bundestag, includes key figures for 2026 to 2029 and provides for the securing or increase of important funding programs, such as social housing, urban development funding, and the federal funding for energy-efficient buildings (BEG). With the 2024 Annual Tax Act, the previous German government introduced a new non-profit housing structure from January 1, 2025, providing support to companies that build affordable apartments and rent them out on a long-term basis. At the beginning of the year, the property tax reform was also implemented, and the housing benefit was adjusted to reflect current price and rent developments. The CO₂ price also rose from € 45 to € 55 per metric ton. New building regulations came into force in Sweden on July 1, 2025. In addition, on May 22, 2025, the Swedish government decided to submit a bill to the Riksdag to amend the Planning and Building Act in order to simplify and clarify building permit regulations. The Riksdag is expected to vote on the proposal after the summer. To ease inflation, the rent increases due in Austria’s regulated housing market from the beginning of April 2025 have been suspended for one year. This does not affect unrestricted rental agreements. As part of the 2025 Budget Accompanying Act, the Austrian government is implementing a reform of the real estate transfer tax on land transfers. It has been in effect since July 1, 2025, and is specifically aimed at increasing taxation on share deals. The expiration of the KIM Regulation on July 1, 2025, is expected to ease the granting of loans for residential property.