Residential investment asset class with the highest turnover in 2024

The German residential investment market continued its market recovery in the fourth quarter. The investment volume increased significantly in 2024 compared to the previous year, with the result that €9.3 billion was invested in larger residential portfolios (30 residential units or more). This makes the residential investment market the asset class with the highest turnover in 2024, well ahead of logistics (approx. €6.9 billion), retail (€6.3 billion) and office investments (€5.2 billion). Although the long-term average was undercut by 50%, the previous year's result was significantly exceeded by 78%. In addition, land was sold for a good €600 million, which also speaks for a positive view of future development activities. The noticeably increased market momentum is likely to continue in 2025 and continue to gain breadth and momentum, against the backdrop of the completed price and consolidation phase, the further easing of the ECB's monetary policy and a very high increase in rents. This is the result of the analysis by BNP Paribas Real Estate.

"In 2024, the residential investment volume amounted to €9.3 billion. Residential was thus the asset class with the highest turnover for investors. Forward deals in particular accounted for the largest share of the overall market at €3.7bn, which speaks for investors' positive long-term view of the residential asset class. Berlin also continues to be a strong focus for investors and was able to achieve a strong result of €3.4 billion," explains Christoph Meszelinsky, Managing Director and Head of Residential Investment at BNP Paribas Real Estate GmbH. "A significantly higher number of registered major transactions shows that the uncertainties of the previous quarters are increasingly receding into the background and that a price structure that works for buyers and sellers has emerged. In addition, it is clearly positive that the first major deals in the value-add segment have already been announced. The highly tense rental housing market, especially in the top locations, the stabilising high rent dynamics, the good availability of capital and the renewed decline in capital costs speak in favour of a German residential investment market that will continue to gain market momentum across the board in the short and medium term."

Large-volume segment over €100 million with 62% market share

Evidence of the consolidation phase that is currently being completed and the presence of "dry powder" is the above-average market share of 62% of large-volume deals over €100 million (Ø10 years: 57%). Here, a cumulative €5.8 billion was registered.

Forward deals currently dominate the market

Forward deals dominated the German residential investment market much more strongly than in previous years, accounting for 40% (Ø10 years: 23%). Even in absolute terms, they have an above-average value of just under €3.7 billion. The portfolio portfolios, which are usually so strong, achieve a significantly higher market share than in the previous year at just under 33%, but this is still well below its ten-year average (Ø10 years: 51%).

Public sector responsible for around a quarter of the investment volume on the buyer side

The distribution of buyer groups is also not necessarily typical for the German residential investment market. With a turnover of around €2.3 billion or a market share of 25% (Ø10 years: 8%), the public sector is by far the strongest buyer group. Behind them, only investment/asset managers and special funds account for revenue shares in the double-digit percentage range.

Berlin is responsible for 67% of the investment volume in the A-cities

The solid investment environment of the A-cities and especially of Berlin was in great demand last year. At the end of the year, the German capital had a high volume of €3.4 billion, or an above-average share of sales of 37% of the total residential investment volume (Ø10 years: 28%), and a very high market share of 67% of the residential investment volume of A-cities. Seven major deals worth €100 million alone as well as large-volume shares in the three-digit million range, each from two nationwide portfolios, underline the high level of confidence in the German residential investment market in general and the Berlin market in particular.

Prospects

"The significantly increased number of registered transactions, especially in the large-volume segment, and the renewed interest of investors in the value-add area are evidence of the consolidation and price discovery phase that is currently being concluded. The sale of larger nationwide portfolios as well as the first deals with lighthouse character outside the top locations have already been announced. The above-average market share of forward deals is also evidence of the continuing momentum in investment activity and the confidence of investors in the German residential investment market. Mirroring this, a compression of prime yields by 10 to 20 basis points in the top locations can be reported for the first time since 2021. The fundamentals, which have already improved in the past year, are likely to improve further in the new year 2025 and provide additional tailwind for the residential investment market. The further progress of the European monetary authorities in the interest rate cut cycle will also contribute to this. For 2025, cuts in the key interest rate to the neutral level of 2% are expected. In this context, borrowing capital is likely to become even easier and easier to plan and contribute to a further reduction in the cost of capital. In addition to the pent-up demand that has already accumulated, the significant population growth of the last two years is currently ensuring very high demand on the rental housing market. The supply side, on the other hand, cannot compensate for the increased demand, especially in the top locations, due to the persistent crisis in new residential construction in Germany. As a result, rents have recently risen more sharply than they have in many years – a process that is likely to continue in the short and medium term. In combination with the valuation corrections that have been made and the significantly lower bond yields, this speaks in favour of investing in German residential real estate. We expect the German residential investment market to pick up momentum in 2025, which should seamlessly follow on from the noticeable market recovery at the end of 2024. There is a good chance that net prime yields will continue to fall in 2025 and that by the end of the year there will again be an investment volume in the double-digit billion range," says Christoph Meszelinsky, summarizing the further outlook.