The heating transition in Germany is facing a decisive phase. While the energy sector has made enormous progress in decarbonization in recent years, the building sector remains one of the largest CO₂ emitters. Around 75 percent of the German residential building stock is currently still heated with fossil fuels such as gas and oil. This not only means high CO₂ emissions, but also a financial risk for investors and owners, as fossil fuels will become increasingly expensive in the long term and regulatory requirements will increase.

In this context, the heat pump is the key technology for the heating transition. It makes it possible to gradually convert existing properties to renewable energies and stabilize operating costs at the same time. While the technology was mainly used in new buildings for a long time, the focus is now shifting to existing buildings – particularly due to the political pressure towards decarbonization.

Market development and current figures

The heat pump market in Germany has undergone dynamic development in recent years. 2023 was an absolute record year: with 356,000 appliances sold, sales increased by 50 percent compared to the previous year. This development was driven by high gas prices, growing subsidies and the widespread discussion surrounding the German Building Energy Act (GEG).

However, 2024 brought a significant slowdown: due to uncertainty about municipal heating planning, changes in subsidy conditions and a general reluctance to invest, sales slumped to 193,000 appliances – a drop of almost 46%.

There have been signs of a recovery since the beginning of 2025. In the first half of 2025, 139,500 heat pumps were already sold. This means that the technology has surpassed gas heating systems (132,500 units) for the first time and achieved a market share of around 47%. The construction industry is also showing a clear trend: 69.4% of completed residential buildings are now primarily heated with heat pumps.

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Fossil heating systems are becoming massively less important

At the same time, sales of traditional heating systems are falling rapidly. Gas heating systems, long the backbone of the heating supply, recorded a 41% decline in the first half of 2025. Oil heating systems are de facto on the retreat, with sales plummeting by more than 80 percent and only around 10,500 appliances sold.

District heating continues to play an important role in urban supply, but remains a double-edged solution from the perspective of the real estate industry. On the one hand, connecting to a district heating network requires a corresponding infrastructure, which is only growing slowly in many municipalities. Secondly, the carbon footprint depends heavily on the primary energy used, and the proportion of renewable energies in district heating in Germany is currently below 30 percent. It is also not an option for properties outside the large grids.

Political framework and funding landscape

The political agenda is clearly driving the transformation forward. With the amendment to the Building Energy Act (GEG), the rule that new heating systems in new buildings must use at least 65% renewable energy has been in force since 2024. This means that fossil heating systems have effectively been pushed out of new buildings.

In addition, municipal heating planning will become mandatory for large cities by 2026 and for smaller municipalities by 2028. These plans provide guidance on where, for example, district heating should be expanded and where decentralized solutions such as heat pumps should primarily take over the supply. For investors, this means that those who opt for renewable technologies early on will gain planning security and avoid future conversion costs.

The funding framework remains a key lever. Heat pumps will continue to be supported by attractive state subsidy programs in 2025. This combination of regulatory pressure, rising CO₂ costs in the long term and financial support makes the technology particularly attractive.

Opportunities and challenges for real estate investors

Market developments and regulatory requirements present the real estate industry with clear areas for action:

1. Decarbonization of existing buildings: With around 75 percent of residential buildings heated with fossil fuels, this is where the greatest leverage lies. Every modernization not only increases the energy efficiency class, but also secures the long-term value of the property.
2. Reduction of operating cost risks: Fossil fuels are subject to strong price fluctuations and additional CO₂ levies. Heat pumps, ideally in combination with photovoltaics, ensure greater independence and stable ancillary costs.
3. ESG compliance and value retention: Investors must increasingly focus on sustainability criteria. Heat pump projects are a direct contribution to ESG compliance and ensure rentability in a stricter regulatory environment.
4. Planning security through municipal heating plans: Those who act early position themselves optimally in the defined heat supply zones and avoid later investment pressure.

The biggest challenge remains the conversion of existing buildings. Technological solutions such as modular heat pump systems, smart controls and pre-installed complete packages are crucial here in order to minimize interventions in the building structure and reduce the burden on tenants.

Heat pump ideal for decarbonizing real estate portfolios

The heat pump has long been more than just an option for new builds. It is the key lever for decarbonizing the German building stock and therefore also for the future viability of real estate portfolios. While fossil heating systems are rapidly losing importance and district heating is only selectively available, the heat pump offers real estate investors a combination of regulatory security, ESG compliance and economic stability.

Those who act now not only secure competitive advantages, but also actively shape the energy and real estate landscape of tomorrow. For the industry, one thing is clear: the heat pump is here to stay – and it will be the standard for the German heating transition.

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