Development of the Economy and the Industry

According to the European Commission, economic growth in the EU for the first nine months of 2025 exceeded expectations. Preliminary indicators suggest that economic momentum will remain intact in the quarters ahead too. In its autumn forecast, the Commission therefore expects GDP growth of 1.4% in the EU and 1.3% in the eurozone for 2025. Despite a difficult external environment and continued uncertainty, the Commission believes the most important prerequisites for expansion of economic activity are still in place. Growth will be supported, inter alia, by a robust labor market, falling inflation and favorable financing conditions. Following two years of recession, the German economy ticked up slightly in 2025. According to the Federal Statistical Office (Destatis), gross domestic product (GDP) rose by 0.2%. Higher consumer spending by households and the state, in particular, were mainstays of growth. According to IfW Kiel, expansionary fiscal policy will provide stimulus from the coming year. However, aside from this and the higher number of working days, the underlying economic momentum is likely to remain weak for the time being. The National Institute of Economic Research (NIER) estimates that gross domestic product in Sweden expanded by 1.6% in 2025. Following a weak start to 2025, GDP has subsequently risen again noticeably. The recovery is expected to continue, thanks to higher real wages and expansive economic policy. The Austrian Institute of Economic Research (WIFO) expects Austrian GDP to have expanded by 0.5%. Here too, the economy failed to get going initially in 2025, before a recovery emerged in the second half of the year. Private consumption remained cautious and WIFO observed a downward trend (based on value added) in the construction industry up until the fall. For 2026, GDP growth of 1.0% is forecast for Germany (IfW Kiel), 2.9% for Sweden (NIER) and 1.2% for Austria (WIFO).

According to the Federal Employment Agency, the economic weakness in the labor market was very apparent in Germany. Unemployment and underemployment (excluding short-time work) increased again on average in 2025. At the same time, employment requiring the payment of social security contributions increased slightly in 2025 over the previous year. The average unemployment rate based on the total civilian labor force rose by 0.3 percentage points year-on-year in 2025 to 6.3%. The NIER estimates the unemployment rate in Sweden at 8.8% in 2025, which is approx. 0.4 percentage points more than in the previous year. According to national calculations by the Austrian Public Employment Service (AMS), the unemployment rate in Austria in 2025 was 7.4% and thus 0.4 percentage points higher than in the previous year. Based on respective national definitions, the average unemployment rate expected in 2026 is 6.2% in Germany (IfW Kiel), 8.5% in Sweden (NIER) and 7.3% in Austria (WIFO).

Measured on the basis of the consumer price index (CPI), inflation in Germany averaged at 2.2% year-on-year in 2025, according to Destatis, putting it on par with the previous year. Deutsche Bank Research estimated that inflation will be lower in 2026, as a result of falling goods and energy prices as well as the stronger euro. Inflation in Sweden averaged at 0.7% (SCB) in 2025 and was therefore considerably lower than in 2024. According to the NIER, a temporary reduction in VAT for food products and lower excise duty on electricity will likely lower inflation further in 2026. In Austria, inflation amounted to 3.6% (Statistik Austria) and was therefore somewhat higher than in the previous year. According to WIFO, the base effect of the energy price increase in January 2025 will cease in 2026, thereby driving the rate of inflation down slightly. Based on respective national definitions, a CPI increase of 1.8% is expected in Germany (IfW Kiel), 0.3% for Sweden (NIER) and 2.6% for Austria (WIFO) for 2026 on average.

In response to decreasing inflationary pressure, the European Central Bank (ECB) initially continued its rate-cutting cycle in 2025, which it had begun in June 2024. The interest rate for the deposit facility, which the ECB Governing Council uses to steer the monetary policy course, fell in several steps and has been at 2.00% since June 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 on October 1, 2025, to 1.75%. The key rates of the ECB and the Swedish Riksbank are expected to remain at this level for some time. In this environment, interest rates for construction in Germany, Sweden and Austria fell slightly in the second half of 2024. As an indirect result of the debt package agreed by the CDU/CSU and SPD political parties, these rates rose slightly in Germany in the first quarter of 2025, before moving sideways and then rising towards the end of the year. Interest rates for construction in Sweden and Austria in 2025 were lower than in the previous year. However, as was the case in Germany, they were noticeably higher than before the interest rate turnaround of 2022.

The residential real estate markets are showing a mixed picture: while prices for residential property are stabilizing or rising again, the residential investment market in Germany fell just short of the previous year’s result, despite the recovery in 2025, while transaction volumes increased in Sweden and Austria. On the supply side, new construction will not be able to meet housing demand in the short term, so rental prices will continue their upward trend. According to VALUE market data, quoted rents for existing homes in Germany were 4.2% higher in the fourth quarter of 2025 (new construction: 2.4%) than in the same quarter of the previous year. Colliers and Helaba Research & Advisory (Helaba) expects rents to continue to rise sharply. According to data supplied by Statistics Sweden (SCB), rents in Sweden rose by an average of 4.6% in 2025. The initial data on rent negotiations for 2026 from “Hem & Hyra”, the member magazine published by the Swedish tenants’ association (“Hyresgästföreningen”), point towards a further sharp rise in rents. In Austria, rents (including newly let apartments) increased by 4.3% in 2025 compared to the previous year, according to the Austrian statistical office. RE/MAX also expects rising rents here in 2026 (new rentals not subject to any rent restrictions).

House prices have cooled down considerably in Germany, Sweden and Austria since their peak in 2022. The price decline in Germany came to a standstill in the course of 2024 and average prices rose again in 2025. According to VALUE market data, the asking prices for existing apartments in Germany were 4.4% higher in the fourth quarter of 2025 (new construction: 4.3%) than in the same quarter of the previous year. Experts from LBBW Research, Fitch Ratings and Helaba expect prices to continue to rise in 2026. In Sweden, purchase prices for tenant-owned apartments (Bostadsrätter) moved more or less sideways during 2025 and, according to Svensk Mäklarstatistik, were 0.2% higher in the fourth quarter of 2025 than in the same period of the previous year. Experts at Swedbank expect residential real estate prices to rise by 2% in 2026. In Austria, the values of the current residential real estate price index of the Austrian central bank (OeNB) on the basis of new and used condominiums and single-family residences show an increase in the fourth quarter of 2025 of 2.1% compared with the previous year. Measured in terms of quarter-on-quarter increases, the rise in residential property prices was interrupted by a period of weakness only in the second quarter of 2025. According to RE/MAX, the purchase prices for condominiums should increase moderately in 2026.

Germany's population is unlikely to have changed much (-0.1%) in 2025, while populations are likely to have risen again in Sweden and Austria. Population levels are predicted to grow further in all three countries. Many 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. GdW estimates that only 218,000 apartments will have been completed in Germany in 2025, compared with around 251,900 in 2024. Helaba forecasts 210,000 completions for 2026 and GdW only 200,000. This will significantly fall short of the approximately 320,000 new homes needed annually until 2030, according to the latest BBSR housing demand forecast, and significantly widen the supply gap. 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). The Central Association of the German Construction Industry (ZDB) meanwhile sees positive signals for residential construction, with projects being restarted again a long investment impasse. Boverket estimates that 50,300 apartments will have to be built per year in Sweden by 2034. Around 30,000 apartments are expected to have been built in 2025, with the figure expected to persist at this level in 2026. This means that the additional annual need will not be met. Given the improved conditions, the number of construction starts in 2025 picked up slightly compared to 2024 and could rise further in 2026. In Austria, approximately 38,000 apartments were completed in 2025 according to EUROCONSTRUCT forecasts, with a decline to just short of 34,000 expected for 2026. According to CBRE Austria, a growing population and falling completions will exacerbate the structural undersupply on the rental housing market, especially in Vienna.

Germany’s residential investment market was stable in 2025. Residential real estate remains the strongest asset class in the real estate investment market, in terms of turnover. According to CBRE, transactions volumes (in excess of 50 residential units) amounted to € 8.4 billion and were therefore down only slightly on last year (2024: € 8.8 billion). The number of transactions meanwhile increased noticeably. Core and core-plus transactions accounted for 54% of the volume, while the value-add segment reached 44%. The share of international investors increased significantly. The largest net investors were asset and fund managers, ahead of municipal residential real estate companies. The prime yield remained stable at 3.4% in 2025. CBRE expects a slight market recovery in 2026 and a potential increase in transaction volume to as much as € 10 billion. According to Colliers, properties worth € 15.7 billion were traded across all segments on the Swedish transaction market in 2025, representing a year-on-year increase of approx. 30%. In terms of turnover, residential properties were the strongest asset class with a share of 26% alongside public sector properties (also with a share of 26%). According to CBRE, the transaction volume on the Austrian real estate investment market totaled € 4.1 billion in 2025, and therefore around 40% more than in the previous year. In terms of turnover, residential property was also the strongest asset class here with a share of 29%.

Housing policy developments in 2025 have included several measures and proposed laws. In Germany, the federal government, for example, extended the rent cap until the end of 2029 with a rent control law that came into force in July 2025, as agreed in the coalition agreement. In addition, the Federal Justice Minister submitted a draft bill at the end of 2025 for internal government consultation, which would cap index-linked and short-term rental agreements, and tighten the rules on the rental of furnished apartments. The Act to Accelerate Residential Construction and Secure Residential Capacity (Bauturbo) came into effect at the end of October 2025. The budget for 2026, which the Bundestag passed at the end of November 2025, is also increasing the volume of funds available for housing construction, among other things. The budget will reinforce and promote social and climate-friendly housing construction; for example, the new one-time EH55 subsidy has been secured. A new non-profit housing structure was introduced on January 1, 2025, providing support to companies that build affordable apartments and rent them out on a long-term basis. Also at the beginning of 2025, the property tax reform was implemented, and the housing benefit was adjusted to reflect current price and rent developments. The CO₂ price increased simultaneously from € 45 to € 55 per metric ton and rose to € 55 to € 65 per metric ton at the start of 2026. The planned EU Emissions Trading System for heat and transport will now not come into effect in 2027, but in 2028 instead. The member states must implement the Energy Performance of Buildings Directive (EPBD) into national law by the end of May 2026. The federal government plans to implement it together with a reform of the Buildings Energy Act (GEG). It is to be named “Building Modernisation Act” in the future and shall be open to all types of technology. By July 1, 2026 at the latest, the GEG regulation will require new heating systems to use at least 65% renewable energies in the big cities. New building regulations came into force in Sweden on July 1, 2025. A new regulatory framework for building permits has also been in force here since the beginning of December 2025 with the amendment of the Planning and Building Act. Its aim was to simplify and clarify the authorization provisions. Since the start of 2026, the rules for annual rent increases that apply to other rental apartments in Sweden also apply to apartments with presumptive rent (presumtionshyra, mainly new buildings). Earlier court rulings provided for lower increases. At the start of 2026, the 5th Inflation Reduction Act under Tenancy Law (5th MILG) came into effect in Austria. This will raise the minimum fixed term for rental agreements and install a rent cap for the unregulated and regulated housing market. To ease inflation, the rent increases due in the regulated housing market from the beginning of April 2025 have been suspended for one year. As part of the 2025 Budget Accompanying Act, the Austrian government implemented a reform of the real estate transfer tax on land transfers. It has been in force since July 1, 2025, and is specifically aimed at increasing taxation on share deals. The expiration of the KIM Regulation, as it is known, on July 1, 2025 is expected to ease the granting of loans for residential property.