Financing costs in Germany have moved faster than asset prices. The German 10-year Bund yield stood at 2.85% at the end of 2025 and at 3.35% on 27 October 2026, after a peak of 3.64% on 28 September (Deutsche Bundesbank), and the European Central Bank (ECB) has raised its deposit facility rate twice this year, to 2.50%. The most recent transaction-based price data largely pre-date that move. piHub’s conviction this month is that the next two quarters will be decided less by valuation than by financing readiness: the ability of a borrower to evidence interest cover at today’s rates. For a debt advisory firm, the implication is practical. Transaction-based price indices capture completed deals and may therefore reflect changing financing conditions with a lag. Transaction volumes, market sentiment and refinancing terms can provide earlier indications of adjustment.

1. Macro Backdrop: The Rate Move Is Real, Even After the Retracement

The ECB raised its deposit facility rate by 25 basis points on 11 June and again on 10 September, from 2.00% to 2.50%, and left all three key rates unchanged on 29 October (main refinancing rate 2.65%, marginal lending rate 2.90%). A pause is therefore not a pivot: the cost of capital that borrowers underwrite against is the level reached, not the direction of the last meeting. The next decision is due on 17 December 2026. Inflation explains the caution. German consumer prices rose 3.3% year-on-year in September, up from 2.9% in August and the highest reading since December 2023, driven by energy (+14.9%); core inflation, which excludes food and energy, was 2.4% (Destatis). Preliminary October data subsequently showed headline inflation easing to 2.8% and core inflation to 2.1% (Destatis, 30 October). This moderates the immediate inflation pressure, although it does not reverse the higher financing-cost environment facing borrowers.

The Bund yield has retraced 29 basis points from its September peak, but at 3.35% it remains 50 basis points above its level at the end of 2025 and well above 2.84% at the end of June. Sentiment is improving from a low base: the ifo Business Climate Index rose to 90.2 in October from 89.9 in September, although firms rated their current situation slightly worse. For lenders, higher base rates with a stabilising economy is a workable setup; it is a different proposition for a borrower whose business plan assumed lower rates.

2. Prices: The First Signal Is in Commercial Property

The vdp Property Price Index for the second quarter reflects transactions concluded between April and June, before the September increase. It already shows a divergence. The overall index rose 1.3% year-on-year and fell 0.1% quarter-on-quarter. Residential prices rose 1.9% year-on-year (+0.3% on the quarter); office prices fell 1.2% year-on-year (−1.5% on the quarter), the first annual decline in five quarters, and the vdp yield index for office rose 4.0%, meaning office yields rose — widened — materially. Retail prices fell 0.2% year-on-year. The third-quarter index, expected in November, is the first to capture the September rate move.

In multifamily, new-contract rents rose 3.2% year-on-year against price growth of 1.6%, and the vdp yield index for multifamily rose 1.5%: yields widened because rental income grew faster than prices, not because prices fell. This is a relative change in the index, not a 1.5% percentage-point move. Although rental income continues to outpace capital values, this does not automatically translate into stronger debt-service coverage. The decisive test is whether net operating income can support debt obligations under current refinancing conditions.

3. Supply: Permits Are Not Completions

Destatis recorded building permits for 169,400 dwellings between January and August 2026, 12.1% more than a year earlier, and for 90,600 new multifamily dwellings, up 14.5%. Destatis cautions that late reporting by building authorities means recent months are initially understated. The order books tell a different story. The ifo business climate for residential construction fell from −22.5 in August to −25.1 in September, 41.3% of firms reported a shortage of orders, and 14.1% reported cancellations, up from 13.4% in August; ifo attributes the decline to the ECB rate increase and higher financing costs.

Completions fell 18.0% to 206,600 dwellings in 2025, and the average time between permit and completion lengthened to 27 months from 20 in 2020 (Destatis). Permits are recovering on paper, but projects are not being commissioned at the same pace, and the permit-to-completion lag means approvals will not become delivered stock soon. For lenders this reinforces our stance on speculative development and supports the scarcity value of existing, income-secured stock.

4. What This Means for Borrowers and Lenders

Underwrite at current refinancing terms. Test debt-service coverage using current benchmark rates, applicable lending margins and realistic amortisation assumptions, including a sensitivity case of a further 100-basis-point increase in borrowing costs, not origination-date assumptions. A retracement of 29 basis points does not restore the financing terms available in 2025.

Treat the ECB pause as optionality, not relief. Sponsors with maturities in the coming two years should open refinancing discussions early and avoid concentrating maturities, since the transaction market may be thin when a loan falls due.

Prepare for delayed valuation adjustments. If the second-quarter commercial divergence extends to other segments in the third-quarter data, lenders relying on stale valuations will carry more risk than the index suggests.

Where we could be wrong. Three points weaken this view. First, we cannot separate the effect of rates from geopolitics, energy costs and reform uncertainty, which other market commentators also cite. Second, the Bund yield has retraced; if it continues to fall, repricing in asset values may be smaller than we expect. Even if financing costs remain elevated, asset prices need not fall where net operating income growth or investor demand compensates for higher required yields. Third, we have no verified lending-spread data this month, so we cannot say how much of the rate move lenders have passed on to borrowers.

5. piHub’s Position for October

• Active — Income-secured multifamily residential debt: underwritten to in-place rent roll and debt-service coverage at refinancing under current rates, with no reliance on appreciation at exit.
• Active — Healthcare and senior living: unchanged. No new primary data for this segment is cited this month, and the position rests on the structural factors set out in earlier editions.
• Selective — Munich prime office: unchanged, with lending only where exit liquidity is demonstrable, given that vdp shows national office prices down 1.2% year-on-year and office yields rising.
• Avoid — Unsubsidised speculative residential development: unchanged. The permit-to-completion lag of 27 months (Destatis), a residential construction climate of −25.1 and rising cancellations (ifo) keep delivery and financing risk high.
• Logistics: Active stance maintained; this edition cites no new primary data for logistics.
• Outside the standing framework — Retail: unchanged; vdp shows retail prices down 0.2% year-on-year.

6. Bottom Line

Debt has repriced before assets. The September rate move is visible in financing costs and in construction sentiment. Commercial property prices had already shown signs of weakness before September’s latest tightening; the subsequent increase in financing costs adds pressure to a market in which transaction-based residential valuations have remained comparatively resilient. The ECB’s hold on 29 October is not a reversal, and the retracement of the Bund yield does not remove the need to underwrite at the higher level. piHub’s posture for October is constructive on income-secured collateral and disciplined on refinancing assumptions: financing readiness, not valuation, will decide who can transact over the next two quarters.

piHub Private Investments is actively reviewing senior, whole-loan and mezzanine financing opportunities of €10–50 million across income-producing multifamily, healthcare, senior living and selected logistics assets. To discuss a project — or to receive our current underwriting criteria — contact piHub Private Investments GmbH.

Sources: Deutsche Bundesbank, European Central Bank, Destatis, vdp / vdpResearch (Property Price Index Q2 2026, published 10 August 2026), ifo Institute. Percentage changes in the vdp yield (Liegenschaftszins) index are relative changes in the index, not percentage points. The Bund yield of 3.35% is the 27 October 2026 daily observation; the Bundesbank series is the 10-year listed Federal bond yield.