GERMANY Trends and Developments Contributed by: Carsten Loll, Otto von Gruben, Ivo Veit Wanwitz and Sebastian von Hornung, Latham & Watkins LLP
public building law, environmental regulation, and compliance with emission control rules. Investors must manage complex permitting procedures and meet stringent requirements regarding emissions and energy consumption. Sustainability and ESG compli - ance are also increasingly important, with a focus on renewable energy integration and energy-efficient design. Despite these opportunities, the sector faces several challenges. High energy consumption can act as a constraint, and competition for suitable land in prime locations is intense. Grid connection issues are criti - cal, given the substantial power requirements of data centres. Securing reliable capacity often requires complex negotiations with local network operators. Nevertheless, the long-term outlook remains posi - tive, with private equity and infrastructure investors viewing data centres as stable assets offering strong cash flows and reliable demand from major technol - ogy tenants. Residential: a defensive asset class with growth potential Germany’s residential rental market remains one of the most resilient real estate segments, providing stable long-term income. With home ownership rates con - sistently below 50% and a persistent housing supply shortage, demand for rental accommodation remains strong. Institutional investors continue to expand their multifamily portfolios, attracted by the sector’s abil - ity to generate stable income even during economic downturns. The sector nonetheless faces regulatory challenges. Government measures aimed at supporting afford - able housing have resulted in increased regulation, including the Mietpreisbremse (rent control), which restricts rent increases upon reletting in urban areas. In addition, the Kappungsgrenze (rental cap) limits rent increases to 20% over a three-year period, or 15% in areas with particularly tight housing markets. This framework ensures predictable and gradual rent adjustments, protecting tenants while allowing land - lords to manage yields. Exceptions may apply fol - lowing substantial property improvements, subject to justification.
A particularly important development concerns Berlin, where the debate over the potential nation - alisation of residential housing portfolios has moved closer to legislative implementation. In late 2025, the “ Deutsche Wohnen & Co. enteignen ” initiative pub - lished a detailed draft law proposing the nationalisa - tion of approximately 220,000 apartments owned by large private landlords. Compensation would amount to only 40% to 60% of market value and would be financed through 100-year bonds at an interest rate of 3.5%, serviced from rental income rather than the city’s budget. Signature collection is expected to begin in 2026, with a referendum targeted for 2027. Although implementation remains legally and politi - cally uncertain and would almost certainly face consti - tutional challenge, the proposal has already increased perceived political risk in Berlin and may influence investor valuations. Residential investments also allow PERE investors to align their strategies with ESG objectives by integrat - ing sustainability measures into new developments and refurbishment projects, thereby accessing public funding and tax incentives. At the same time, some investors are targeting distressed residential develop - ers facing financing difficulties, enabling acquisitions at discounted valuations. Thorough legal due diligence and careful contract structuring, including compliance with the German Civil Code (BGB) and Federal Build - ing Code (BauGB), are critical to mitigating risk. This approach addresses short-term market pressures while positioning investors to benefit from long-term growth in Germany’s residential rental market. Future outlook: what is next for PERE in Germany? The coming years are likely to bring continued consoli - dation and structural realignment in the German PERE market, rather than a rapid return to previous peak transaction volumes. Reliance on alternative capital structures, including preferred equity, private credit, and other forms of structured financing, is expected to persist as traditional lenders remain cautious. At the same time, investors will continue to target high- growth, technology-driven real estate segments, par - ticularly data centres and digital infrastructure, with greenfield development playing an increasingly impor - tant role.
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