Real Estate

Real Estate Update 2024 – Grounds for cautious optimism?

The property market will continue to face major challenges in 2024. This is largely due to geopolitical developments such as the unpredictable situation in the Middle East and Ukraine – despite the fact that energy security fears raised at the beginning of the war in Ukraine have not fully materialised, as reliance on Russian natural gas has been significantly reduced. The US presidential election in November 2024 also looms large. Domestically, the persisting uncertainty surrounding the future of the ruling coalition Ampelkoalition" and the potential impact of upcoming state elections as well as the sometimes tumultuous shifts in the German government’s economic and budgetary policy will likely continue to cause considerable uncertainty. 

It is already becoming apparent that the budget crisis triggered by the Federal Constitutional Court’s ruling on the use of money from the Climate and Transformation Fund will result in numerous funding programmes being cut or suspended, particularly those intended to support the energy transition and the transformation of industry and the economy. This will also indirectly increase energy and consumer prices – the grid fee subsidy paid from federal funds is to be eliminated, for example – something that will ultimately be felt on the property market.

Inflation, on the other hand, has noticeably cooled, which is starting to impact interest rates. While the inflation rate was still at 8.7% in January 2023, it more than halved over the course of the year, resulting in overall inflation of just under 6% in 2023 with an ifo forecast of around 2.5% for 2024. The European Central Bank’s key interest rate  remains high, however; it stood at 2.5% at the end of 2022 and has since been successively raised to 4.5%. Likewise, the Bundesbank raised its base rate from 1.62% at the beginning of 2023 to 3.62% as of 1 January 2024. However, the ECB has recently resisted pressure to raise interest rates again, and the increase in the base rate has also significantly slowed. Nevertheless, the relevant indices are expected to stagnate or at best fall moderately in the coming months in order to minimise any remaining inflation risks. Meanwhile, the development of the key interest rate  is beginning to have an impact on property interest rates. While ten-year fixed rates were still well above 4% in November 2023, they had dropped below that by the beginning of 2024.

With construction costs still high and energy costs likely to rise again, interest rates will probably continue to hamper the development of property – and therefore property transactions – in all asset classes for some time to come, although the industry is much more optimistic than it was a year ago. However, given that economic growth is still generally subdued, calls by property buyers (or sellers), lessors and lessees for legislators to take action are unlikely to cease in the new year.

All of this needs to be seen against the background of the immense challenges facing the property sector as a result of climate change, although there is a steadily growing awareness of the need for sustainable and climate-friendly action.

In the following, we look at the key developments and outline important legislative changes that are likely to have a decisive impact on the property market in 2024. 

Continued clear focus on increasing sustainability in the property sector

The property sector is not immune to the challenges posed by climate change. In fact, the legislator has further tightened the requirements for the construction and operation of properties in the last year to ensure they are as climate-friendly and sustainable as possible.


Following extensive, sometimes acrimonious political debates, far-reaching changes to the Building Energy Act (Gebäudeenergiegesetz, “GEG”) came into force on 1 January 2024. The legislator’s main aim was to further strengthen the use of renewable energies in the building sector. Accordingly, the new regulation in section 71(1) GEG stipulates that new heating systems must generate at least 65% of the heat provided using renewable energies or unavoidable waste heat. This requirement does not apply to heating systems used to supply buildings for national defence or alliance defence purposes (section 71(7) GEG) or systems for which a supply or service contract was concluded before 19 April 2023 and which are installed or set up for the purpose of commissioning on or before 18 October 2024 (section 71(12) GEG). While new buildings must comply with this regulation, the legislator has for the time being refrained from including an immediate obligation to replace existing systems in existing buildings. Instead, section 71(10) GEG provides that heating systems that do not meet the requirements of section 71(1) GEG may be replaced or installed or set up and operated until midnight on 30 June 2026 in existing buildings in municipalities that have more than 100,000 inhabitants on 1 January 2024. For smaller municipalities, this applies until midnight on 30 June 2028. The legislator has retained the obligation to replace oil heating systems and boilers that are more than 30 years old. Property companies should therefore ensure they keep track of when heating systems need to be replaced and what technical options are available, bearing in mind the municipality in which the property is located and when municipal heat plans are expected to take effect (see below for more details). The special regulations in section 71o GEG and sections 559, 559e Civil Code (Bürgerliches Gesetzbuch, “BGB”) take the interests of the affected lessees into account by capping any rent increases at EUR 0.50 per square metre of living space for a period of six years. The economic interests of owners were to be taken into account as part of the federal subsidy for efficient buildings. Following the budget crisis triggered by the Federal Constitutional Court’s ruling, this is to generally remain in place; however, the funding conditions have recently been adjusted and certain grants have been eliminated. 

There will be further changes to the GEG, in particular to implement the European Union’s revamped Energy Performance of Buildings Directive. The European Parliament and Member States reached a compromise on new rules for the energy efficiency of buildings in late 2023, making it likely that the directive will come into force in the first half of 2024 and subsequently be implemented by the Member States. The new regulations contain a large number of measures to increase the energy efficiency of buildings and promote the renovation of existing buildings in the Member States, focussing on buildings with the lowest energy efficiency. The main objectives are for all new buildings to be zero-emission by 2030 at the latest and for existing buildings to become zero-emission by 2050.

The requirements of the GEG are also closely linked to the Heat Planning Act (Wärmeplanungsgesetz, “WPG”), which aims to achieve a greenhouse gas-neutral heat supply by 2045 at the latest based on so-called heat plans. These plans are intended to determine the best and most cost-efficient type of local heat supply, strategically divide the municipal area into heat supply areas and give consumers and suppliers certainty as to which heat supply they can expect in their area. This should provide energy consumers with a basis for planning and deciding on their energy supply investments.

The Building Electromobility Infrastructure Act (Gebäude-Elektromobilitätsinfrastruktur-Gesetz, “GEIG”, see also the corresponding GL newsletter), which obliges builders and owners of certain residential and non-residential buildings to install wiring infrastructure and charging points, came into force in March 2021. However, as section 10(1) GEIG requires owners of non-residential buildings with more than 20 parking spaces to ensure that the required charging points are installed after 1 January 2025, many owners will likely arrange for the installation of the required charging points in the coming year, particularly since failure to comply with this obligation may lead to a fine of up to EUR 10,000. This gives rise to numerous (property) law issues, some of which are already being hotly debated, and not all of which are answered by the GEIG or the accompanying provisions in section 554 BGB or section 20(2), sentence 1, no. 2 Apartment Ownership Act (Wohnungseigentumsgesetz, “WEG”), according to which structural changes that serve to charge electrically powered vehicles must be tolerated or can be demanded. 

In addition, the Energy Efficiency Act (Energieeffizienzgesetz, “EnEfG”) came into force on 18 November 2023. Its aims include helping reduce primary and final energy consumption as well as the import and consumption of fossil fuels, improving security of supply, and ultimately mitigating climate change and ensuring that national and European energy efficiency targets are met. Under section 8(1) EnEfG, companies with an annual average total final energy consumption of more than 7.5 GWh in the last three years must set up an energy or environmental management system. Section 9 EnEfG gives companies with an annual average total final energy consumption of more than 2.5 GWh three years to draw up and publish feasible implementation plans for all final energy saving measures identified as economically viable under the Act.

Further legal changes

Finally, there are various other legal changes that are likely to have an indirect impact on the property market.

First, on 1 January 2024 the CO2 price increased by EUR 15.00 to EUR 45.00 per tonne of CO2 emitted. As lessors and lessees have been sharing the CO2 levy in accordance with the Carbon Dioxide Cost Allocation Act (Kohlendioxidkostenaufteilungsgesetz, “CO2KostAufG”) since the beginning of 2023 (where the lessor’s share depends on the building’s efficiency level and can amount to up to 95% of the costs incurred under certain circumstances), this means a significant additional burden for both owners and users.

Next, the state price brakes for gas, district heating and electricity expired on 31 December 2023 and the full VAT rate of 19% has been reinstated for gas and district heating since 1 January 2024. Not only will this increase ancillary costs, but also the already high construction costs. The state price brakes also led to different notification and reporting obligations for lessees and lessors, which continue to apply. This will likely continue to require considerable billing and monitoring effort in 2024.

In addition, on 1 January 2024 North Rhine-Westphalia imposed an obligation to install photovoltaic systems when carrying out roof overhauls or constructing new, non-residential buildings. Bremen is to follow suit on 1 July 2024 but without the restriction to non-residential buildings. 

Last year the German Property Federation (ZIA) fundamentally revised its 2018 guidelines on green leases, recognising the fact that green leases and green lease clauses have been steadily increasing in importance over the past few years – this despite there currently being no legal definition of a green lease, nor any (legally) binding criteria for determining when a lease qualifies as a green lease. To reflect the increased importance of ESG (Environmental, Social, Governance) criteria, the draft of the guidelines is now entitled “From Green Lease to ESG Lease” and takes into account how the concept of sustainability has been fleshed out in recent EU regulations (such as the Taxonomy and Disclosure Regulations). The guidelines will therefore likely continue to decisively shape the discussion on the further development of green leases.

The consequences of continued high inflation

Despite the continued high level of inflation, the legislator did not see fit to introduce changes to the provisions on frustration of contract (section 313 BGB) last year – unlike it did during the COVID-19 pandemic, at least to some extent and temporarily, with Article 240, section 7 Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch, “EGBGB”). Instead, it has been left to the courts and contracting parties to find appropriate responses to the challenges posed by this situation. Given the reluctance to extend existing contracts to include provisions allowing for the latest developments in inflation, however, and also the degree of wrangling over the wording of indexation clauses in new rental and lease agreements – which must allow for the current unusually high level of inflation while also being commercially appropriate for the entire term of agreement – the issue of how to structure provisions protecting against inflation is likely to remain contentious even as inflation cools. This is all the more so considering that the lower instance courts have repeatedly confirmed that indexation clauses can only be adjusted in accordance with the principles of frustration of contract under strict conditions.


While there are certainly grounds for cautious optimism given that interest rates are showing signs of normalising, the COVID-19 pandemic has largely been overcome, energy security has improved and inflation has eased, the large number of ongoing multipolar crises mean that a certain degree of underlying uncertainty remains – which is also likely to have an impact on the dynamics of the property market. The challenge of reconciling the goal of ever more climate-friendly and therefore more sustainable property development and management with legitimate profit interests under uncertain (geo)political conditions is therefore likely to continue to shape the property market in 2024.