German real estate investment market: slow recovery continues, but remains fragile

The German real estate investment market for commercial and residential real estate* has gained some momentum in recent months. In the 3rd quarter, the transaction volume amounted to just under EUR 7.6 billion, which was a fifth higher than in the previous quarter. Nevertheless, the transaction volume so far this year has fallen short of that of the previous year. From January to September, properties changed hands for around 21.6 billion euros. Compared to the same period last year, this represents a decrease of 9%. The number of completed transactions was 5% below the previous year's figure. Measured against the 10-year average, the transaction volume was 54% lower. Karsten Nemecek, Deputy CEO Germany and responsible for Capital Markets, comments on the current market environment as follows: "The full deal pipeline is slowly translating into an increasing number of completed transactions. However, a look at the ongoing transaction processes also shows that many of them are not a sure-fire success, especially since the owners still rarely want to or have to sell at any price. Nevertheless, we consider at least a small year-end rally to be likely in view of the partly large-volume products in the market. However, the general finding remains unchanged: the recovery is fragile and, in view of unstable conditions, a sustainable turnaround has not yet been completed."

Revenue decline in all segments except healthcare/social real estate

Residential real estate accounted for the most take-up so far this year at around EUR 5.5 billion (-13% year-on-year), followed by retail real estate with EUR 4.3 billion (-3%). For the first time in a long time, the office segment was able to move ahead of industrial/logistics properties: around EUR 3.6 billion was generated with the former (-1%), with the latter around EUR 3.5 billion (-17%). Healthcare and social real estate accounted for a transaction volume of just over EUR 1.1 billion (+103%), of which around one third was attributable to the sale of a nursing home portfolio of Deutsche Wohnen AG. Prime yields remained unchanged in all segments and continue to range from 3.6% for multi-family buildings to 5.8% for shopping centres.

On balance, private sources of capital invested by far the most

Although institutional buyers are also becoming more active again, private sources of capital, including family offices, continue to play a major role. With a direct purchase volume of around EUR 3.0 billion, they were the second largest group of buyers after investment managers (EUR 5.9 billion). Investment managers, however, have sold a similar amount as they bought (5.2 billion) and therefore have a net purchase volume of just under 700 million euros, while private sources of capital have a net purchase volume of 2.2 billion euros and lead this ranking by a wide margin. Private equity companies and the public sector follow in joint third place, both with a net acquisition volume of just over EUR 600 million. Matthias Pink, Head of Research Germany at Savills, comments: "Institutional capital remains reluctant, especially in the office investment market, and private investors are taking advantage of the opportunity to secure high-quality properties. They are also among the most active buyer groups in the retail and residential real estate market. It is quite possible that they will remain so throughout the rest of the cycle." This year, private investors/family offices are expected to set a new record in terms of acquisition volume – the previous high is 3.4 billion euros from 2019. Savills expects the total transaction volume in 2025 to total around EUR 35 billion, which would be slightly less than in the previous year (approx. EUR 36.7 billion).

* only transactions from 50 residential units

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