500 billion euros that change a lot

Market in Minutes

In a recent Market in Minutes (MiM), Savills looked at the investment market for commercial real estate in Germany in February 2025. The following are the results:

• In the election month of February, the transaction volume on the German real estate investment market remained unspectacular at just under 2.3 billion euros. Far more spectacular is the scope of the financial package that the likely new federal government of CDU/CSU and SPD wants to adopt in the short term. In response to these plans, interest rates rose significantly at the long end. Yields on 10-year German government bonds recently reached 2.8%, their highest level in about two years.
• Irrespective of the specific design of the financial package, it can be assumed that the public sector will require considerable capital and thus structurally higher long-term interest rates. This, in turn, means an upward impulse for real estate yields, especially in the interest-rate-sensitive core segment. A compression of prime yields has now at least become less likely. In addition, higher interest rates are likely to cause further increasing stress on the refinancing market and additional sales of leveraged properties.
• Rising construction costs, which are to be expected as a result of the planned infrastructure special fund, would also burden the owners of older existing buildings in particular and are therefore also likely to promote transactions. In addition, the additional government investments, which are presumably mainly flowing into civil engineering, could further slow down the construction of commercial and residential real estate. This would improve the medium- to long-term rental growth prospects across all segments, especially since the massive public investments would also stimulate the economy.
• Once again, the framework conditions for real estate investments have changed substantially with the planned financial package. Overall, the environment remains uncertain and forecasts have a short shelf life. On the one hand, this is unfavorable for real estate investments. On the other hand, the persistently high volatility, which is affecting other asset classes even more, is strengthening real estate as a diversification component in a multi-asset portfolio.