Germany's Housing Push: EUR 300 million for Commercial-to-Residential Conversions

Why should I read this?

Germany faces significant pressure in the residential housing market, particularly in urban centres. Meanwhile, the office sector has partially emerged as a distressed asset class, affected by structural vacancy and declining demand. The new Federal Government programme commercial-to-residential conversions seeks to address both issues by financially incentivising the conversion of heated non-residential buildings into residential units. For this, federal funds of EUR 300 Mio are now available.

The programme is relevant for real estate developers, institutional investors, asset managers, housing companies and owners of obsolete commercial assets assessing repositioning strategies. Eligible applicants may receive funding covering up to 30% of eligible conversion costs, calculated on a maximum cost base of EUR 100,000 per newly created residential unit. This results in a maximum grant of EUR 30,000 per residential unit and up to EUR 300,000 per project.

What do I need to know?

New KfW funding programme No. 266 – "commercial-to-residential conversions" ("Gewerbe zu Wohnen")

The Federal Ministry for Housing, Urban Development and Building has introduced KfW funding programme – "commercial-to-residential conversions" on 30 June 2026. The programme supports the conversion of previously non-residential (heated) buildings or parts of buildings into residential accommodation.

The funding is structured as a direct, non-repayable grant (Zuschuss), meaning that eligible recipients are not required to repay the funding.

The programme funds the conversion of heated non-residential buildings into residential use, requiring the creation of at least one new housing unit. Eligible applicants include private individuals, companies, municipalities, property owners and other project sponsors. Funding may be available for structural adaptation works, changes to floor plans, interior fit-out, access measures and works to external areas.

A key condition is that newly created residential units must generally achieve at least the KfW Efficiency House 85 Renewable Energy Class (EE Class) standard.

Key Implications for Developers and Investors

The grant is available for application with immediate effect, provided that the application is submitted before any project-related works commence. Developers and investors should therefore consider, when reviewing their asset portfolio, whether the intended conversion from commercial to residential use is legally feasible and whether the necessary change-of-use permit can be obtained under the applicable federal state building regulations. As part of this assessment, the permissibility of residential use under planning law must be examined carefully. Conflicts with neighbouring commercial operations may occur regarding noise, traffic, delivery activities and operating hours, which may affect both the permitting process and long-term marketability of the conversed building.

Market participants interested in funding serviced apartments under this KfW programme should note that eligibility as residential use under German public law depends on the operating concept, lease structure, duration of occupation and degree of hotel-like services, requiring a case-by-case assessment.

What should I do next?

Developers and investors should identify potentially suitable assets and consider a combined legal, technical and funding eligibility for a possible change from commercial to residential conversion of such.