Investment market remains below last year’s figures – nationwide investment volume at €23.1 billion

The total transaction volume on the German property investment market stood at €23.1 billion at the end of September. This falls short of the previous year’s figure by around 3 per cent in a persistently challenging environment. The residential segment remains by far the strongest asset class at €5.9 billion, but is currently recording a year-on-year decline in turnover of just over 5 per cent. The investment volume for commercial property stands at €17.1 billion (-2 per cent). Despite the decline in investment volume, the number of transactions – at around 1,050 – is the highest since 2022. These are the findings of the latest analysis by BNP Paribas Real Estate.

“The framework conditions for the German investment market remain largely unchanged. Geopolitical uncertainties and increasingly expensive financing conditions set the parameters. In particular, the impact of the hostilities in the Middle East – which, contrary to justified hopes for a resolution to the conflict, have recently escalated – is clearly being felt in the market. They are weighing on the global economy and keeping inflationary pressures high, prompting leading central banks to take the next step in raising interest rates in recent weeks, with direct implications for financing costs. Consequently, for investors, the third quarter of 2026 once again saw the recalculation of business plans and the adjustment of risk and investment opportunities on the agenda, which certainly had a dampening effect on the pace of acquisition processes. Accordingly, investment volume has now fallen once again in a direct quarter-on-quarter comparison, and the total investment volume of €23.1 billion falls short of the previous year’s figure by just under 3 per cent, despite a strong start to the year,” explains Marcus Zorn, CEO of BNP Paribas Real Estate, adding: “What these figures do not reflect is the overall high level of transaction activity in the market – with more than 1,000 deals, this is the highest it has been since 2022 – nor the sustainable growth opportunities and value creation potential that the German investment market offers thanks to robust end-user markets. However, the high market share of foreign investors – now standing at 49 per cent – demonstrates precisely this: the time for opportunities is now.”

Residential investments once again represent the asset class with the highest turnover in the overall German market; however, here too, the tighter financing conditions have recently had a dampening effect on turnover, with the result that the volume of residential investment in the third quarter amounted to just €1.6 billion. Taking the year to date up to the end of September into account, around €5.9 billion was invested in German residential portfolios, falling short of the previous year’s figure by around 5 per cent. “The recent slight decline in investment volume in this strong asset class is likely to be merely a snapshot, as demand from institutional investors for this non-cyclical investment product, which offers substantial potential for rent increases, remains consistently high. The weaker third quarter was largely characterised by medium-sized existing portfolios; for the fourth quarter, there are signs of a renewed increase in the number of large portfolios successfully finalised, which could well boost residential investment volumes,” explains Marcus Zorn.

Commercial investment volume stands at around €17.1 billion after three quarters, which is 2 per cent below the previous year’s level. This figure benefits in particular from a successful start to the year, which, against the backdrop of an improving market environment, recorded an investment volume of €6.9 billion. However, the escalation of the Iran conflict from March onwards and the subsequent shift in sentiment on the capital markets significantly dampened market sentiment and weighed on market activity. A weaker second quarter (€5.4 billion) was followed by a subdued third quarter with an investment volume of just under €4.9 billion. The revenue lead over the previous year that had still been in place at the mid-year point was thus eroded for the time being.

“The current financing conditions are a key reason for the significantly subdued transaction activity in the third quarter. Medium- to long-term EUR swap rates are currently at levels last seen in the early 2010s, making financing more expensive. At the same time, government bonds from leading economies are at multi-year highs, making them even more attractive to investors as liquid investment alternatives, although fiscal and political risks are now also being priced in here. For the property asset class, this means that it now faces higher investor expectations than at the start of the year, both in terms of financing costs and competition for available capital,” explains Nico Keller, Deputy CEO of BNP Paribas Real Estate Germany. “In concrete terms, for ongoing and forthcoming property transactions, this means that, in view of the increased cost of capital, buyers and sellers must once again develop a shared and robust understanding of pricing. There are currently many indications that interest rates will remain elevated in the longer term, which should certainly motivate negotiating parties to strive for a viable deal on today’s terms, rather than waiting for more favourable financing conditions at some unspecified point in the future. We expect this to be reflected in transactions during the year-end period. A key factor in closing deals will be whether a purchase is compelling on the basis of current income and realisable potential, without relying
on falling interest rates or a blanket rise in market prices.”

With a transaction volume of just under €4.4 billion and a market share of around 26 per cent, office property continues to lead the way amongst commercial asset classes. This figure falls just short of the previous year’s result by around 2 per cent. In line with the overall market, the office segment lost some momentum in the third quarter, recording an investment volume of €1.2 billion and around 50 transactions.

Logistics investments rank second, with around €4 billion and a market share of just over 23 per cent. This falls short of the previous year’s figure by just over 4 per cent. In the current market environment, investment activity is clearly dominated by individual sales, which, at €2.9 billion, account for around 73 per cent of the total. Consequently, the portfolio share remains at around 27 per cent, which is below the average (41 per cent). It is striking that the average transaction size currently stands at only around €20 million, yet with a total of almost 200 recorded transactions, the third-highest number of deals in the past 10 years was recorded. This is a strong indication of the high attractiveness and dynamism of the German logistics investment market.

The investment volume in the retail segment stands at around €3.1 billion (18 per cent) after three quarters. The current year-on-year decline of around 25 per cent is primarily attributable to the large-scale acquisition of the Porta Group by XXXLutz, which ran into the high three-figure millions last year. Excluding this one-off effect, there would only be a slight year-on-year decline, which in turn is attributable to the slower pace of portfolio transactions. Whilst block sales, at just under €600 million, remain around 69 per cent below the previous year’s figure, the volume of individual transactions rose significantly by 12 per cent to €2.5 billion.

Driven by Aedifica’s acquisition of an 80 per cent stake in Cofinimmo during the first quarter, as well as, in part, by large-scale portfolio transactions, the healthcare asset class recorded a 58 per cent year-on-year increase in investment volume. Around €1.9 billion was invested in this segment, which now accounts for an 11 per cent market share and a result 5 per cent above the 10-year average.

Despite impressive KPIs and strong overnight stay figures, the hotel investment market has seen a decline in transaction volume, which stands at around €1 billion – 27 per cent lower than the previous year’s figure. Unlike last year, there are currently no large-scale individual transactions in the three-digit million range. However, the high number of deals – around 70 – is evidence of the strong appeal of German hotel investments.

Individual transactions continue to account for the lion’s share of commercial investment turnover, totalling around €13.2 billion and representing 77 per cent (-1 per cent year-on-year). Portfolio transactions continue to play a minor role in the overall market, with an investment volume of €3.9 billion, but are a significant market component in the healthcare and logistics sectors. Consequently, these two asset classes account for two-thirds of the total transaction volume.

Despite the shift in interest rate trends, even large-scale deals are still going ahead in the current market environment. Over the first nine months, transactions worth €100 million or more totalled just under €6 billion, exceeding the previous year’s figure by around 26 per cent.

The market share of foreign buyers has risen further to 49 per cent, reflecting the attractive investment opportunities offered by the German property market. International participation is particularly high in healthcare property, at 83 per cent, and in the logistics sector, at 75 per cent. By contrast, office and retail properties are predominantly acquired by German investors, who account for 72 per cent and 69 per cent of turnover respectively.

The volume of commercial property transactions in the seven prime locations – Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart – totalled just under €6.7 billion after nine months (-11 per cent year-on-year).

Munich tops the list with around €1.7 billion and a significant increase of 18 per cent compared with the same period last year. Office properties account for almost half of the Bavarian capital’s total volume. With 20 transactions recorded, this segment has achieved its highest figure since 2021. The second-strongest market is Hamburg with €1.2 billion, although this fell 7 per cent short of the stronger result recorded in the previous year.

Driven by significantly higher transaction activity in the office segment, Düsseldorf (€963 million), up 26 per cent, and Frankfurt (€839 million), up 52 per cent, also recorded significantly higher investment volumes than in the previous year. In other markets, investment volumes have fallen compared with the previous year. In Berlin in particular, with €1 billion (-56 per cent), and Stuttgart (-23 per cent to €295 million), volumes remain very substantial despite the absence of any really large transactions. In Cologne, too, the decline is in double figures, at 10 per cent to €661 million.

The significant rise in financing costs is reflected in the trend in yields. In the third quarter, net prime yields across all asset classes rose, for the most part, moderately by between 10 and a maximum of 20 basis points.

In the office sector, the average net prime yield across A-class locations stood at 4.56 per cent at the end of the third quarter, representing an increase of 7 basis points (bp) on the previous quarter. Munich remains the most expensive office investment market, with yields unchanged at 4.20 per cent. Hamburg also remains stable at 4.35 per cent. In the other top markets – Berlin (4.60 per cent), Frankfurt (4.60 per cent), Cologne (4.70 per cent), Düsseldorf (4.75 per cent) and Stuttgart (4.75 per cent) – the net prime yield rose by 10 basis points in each case.

An increase of 10 basis points has also been recorded for net prime yields in the logistics sector (now averaging 4.70 per cent across A-grade locations), the healthcare sector (5.40 per cent) and new-build residential projects (3.75 per cent).

In the retail sector, net prime yields have risen across all sub-segments. Yields are currently set at 6.10 per cent (+10 basis points) for shopping centres, 5.00 per cent (+10 basis points) for supermarkets and discounters, and 4.75 per cent (+10 basis points) for food-anchored retail parks. Meanwhile, DIY stores have seen the sharpest increase, with their prime yield rising by 20 basis points to 6.40 per cent.

For city-centre commercial properties, the average net prime yield across A-class locations stands at 3.94 per cent, which is around 9 basis points higher than at the middle of the year. Munich remains the most expensive location at 3.50 per cent and, at 5 basis points, has also recorded the smallest increase. In the other A-class cities, yields have risen by 10 basis points in each case and now stand as follows: Frankfurt 3.85 per cent, Hamburg 3.95 per cent, Berlin and Düsseldorf both 4.05 per cent, and Cologne and Stuttgart both 4.10 per cent.

The German investment market is heading towards a fourth quarter characterised by a resurgence in transaction volumes, as – in a still challenging environment where geopolitical volatility remains the order of the day – a growing number of key market indicators are signalling moderate growth and greater predictability; first and foremost the German economy, with improving sentiment amongst businesses, robust end-user markets and the resolute stance of the leading central banks in curbing inflation.

The economic performance of the German economy and the improving sentiment amongst business leaders are likely to play a role in investors’ decisions over the coming months that should not be underestimated. Following the OECD’s lead, Germany’s leading economic research institutes have now also significantly raised their growth forecast for Germany – the world’s third-largest economy – in their latest joint economic assessment. They now forecast GDP growth of 1.3 per cent for 2026, up from just 0.6 per cent in the spring. Exports and industrial production, in particular, have performed better than expected. Additional impetus is coming from public spending on infrastructure and defence. Whilst subdued business investment and the strain caused by higher energy prices are certainly having a dampening effect on growth, should optimism take hold in the boardrooms, this could play a decisive role in ensuring that the current path to recovery is successfully maintained.

User markets have already shown themselves to be robust overall over the past few months and are likely to benefit broadly from moderate economic growth. Of course, depending on the asset class, tenant demand in the respective location and the competitiveness of the individual property will remain decisive factors for investors when making a purchase; however, in general, investors are likely to find it easier – in the wake of an economy that is once again growing at a slightly stronger pace – to identify and price in rental prospects and potential for value appreciation.

Pricing within the context of acquisition processes is likely to be the decisive factor in the final quarter of the year. Rising financing costs have noticeably slowed the pace of transaction activity in recent months, but the persistently high inflationary pressure, together with the central banks’ stated willingness to counter this with further interest rate rises, certainly opens up scope once again for successful final negotiations, provided both sides are motivated to conclude the transaction on current terms rather than wait for more favourable financing conditions at some unspecified point in the future. Robust financing structures and purchase prices that take into account both earnings prospects and property-specific investment requirements remain a prerequisite for a higher volume of deal closures. Further selective adjustments to yields cannot be ruled out under these conditions.

“The improved economic outlook is a positive sign for the German property market. In the short term, however, financing costs and agreement on sustainable purchase prices will continue to be the key determinants of transaction activity. We expect the final quarter to be stronger than the third quarter. Under the current conditions, however, a pronounced year-end rally is unlikely. For the year as a whole, we currently consider an investment volume of around €32 billion across commercial and residential property to be realistic. A consolidating economic recovery could then also provide additional impetus to the investment markets next year,” says Marcus Zorn, summarising the outlook.