German investment market for commercial real estate

• Transaction: The German commercial real estate investment market recorded a turnover of around EUR 24.4 billion in 2024, an increase of 9% compared to the previous year.
• Prime yields: Prime yields either remained stable or rose by only a few basis points across all segments over the course of the year.
• View: In the baseline scenario, Savills expects initial yields to remain stable and transaction volumes to increase at a slow pace.

According to Savills, the investment market for commercial real estate has completed the cyclical turnaround. The transaction volume at the end of 2024 amounted to EUR 24.4 billion, an increase of 9% compared to the previous year. Another expression of the recent increase in activity is that the final quarter was again the strongest quarter in terms of sales after a two-year break. Although there has not yet been a trend reversal in prime yields, they have stabilised in all segments and have either not risen at all or only by a few basis points since last spring. Savills expects the upswing to continue in the current year, but only with little momentum in view of the overall rather adverse conditions. Marcus Lemli, CEO Germany and Head of Investment Europe, comments: "The tailwind, consisting of moderate key interest rate cuts, robust rental markets and a lot of private capital, has stabilized the investment market and is likely to continue to support it. In addition, more and more institutional investors are returning to the market. However, headwinds also remain, for example in the form of the weak economic environment, restrictive lending by banks and, last but not least, the upcoming federal elections and the associated uncertainties. Overall, it remains a market for investors with strong equity capital, who can take advantage of the opportunities in the current environment."

Private investors eager to buy

Private investors, including family offices, were particularly keen to buy last year: they invested more than EUR 2 billion directly and, as in 2023, around 10% of the purchase volume was attributable to direct investments by this group. In the five years before that (2018-22), their share was only half as high on average. In addition, there is indirectly invested private capital, such as the Centrum Group office and commercial building ensemble in Munich's city centre, which was acquired by Commerz Real for a private investor and for which a purchase price in the three-digit million euro range was paid.

Despite a record high share of insolvency sales, selling pressure remains moderate

This transaction is also characteristic of the market with regard to the seller, an insolvent subsidiary of the Centrum Group. More than 11% of the transaction volume last year was accounted for by bankruptcy sales. The highest value to date was registered by Savills in 2013 with a good 3%. Matthias Pink, Head of Research Germany at Savills, comments on this aspect as follows: "Sellers with a more or less large liquidity requirement on the one hand and equity-strong, often private investors on the other have carried the investment market to a certain extent last year and are likely to continue to do so. Capital willing to buy still seems to be available and the liquidity needs of many owners are likely to remain high. At the same time, the selling pressure is rarely so high that sales have to be made at any price. This balance of moderate selling pressure and high demand from equity-rich players has stabilised initial yields at lower levels than in other countries, such as the UK." Due to the fact that initial yields remain low by international standards, opportunistic investors have so far been relatively rare. Last year, they accounted for 6% of the purchase volume.

Potential oversupply for offices foreseeable

The transaction volumes of the individual segments changed only slightly compared to the previous year. Savills registered the largest increase in logistics/industrial real estate, where the transaction volume increased by a fifth year-on-year to EUR 6.9 billion. This also leads the ranking of the highest-turnover uses, followed by retail properties (5.4 billion euros or +8% compared to 2023) and offices (5.3 billion euros or +10% compared to 2023). For the latter, the discrepancy between transaction volumes in the last cycle and those of the last two years is by far the largest. Based on a typical investment horizon of five to ten years, Savills believes that there is a considerable potential overhang of supply with a corresponding price effect in the future, and owners will have to deal with the question of whether they should keep properties in their own portfolios longer than originally planned instead of selling them.

Base scenario for 2025: Selective yield compression with slightly higher transaction volume
In Savills' view, the further course of the investment market will depend to a large extent on how the affected owners close their funding gaps or satisfy their liquidity needs. If this happens primarily through (short-term) sales, the result would be a significant increase in transaction volume and rising yields beyond the top segment. If such sales fail to materialise or at least remain the exception, for example because alternative financiers provide owners with sufficient capital, prices are likely to remain largely stable. However, the transaction volume would then probably continue to increase only slowly. At present, Savills considers the second scenario to be more likely, partly because interest rates are likely to fall somewhat, which will not only make refinancing easier, but also likely to return more institutional capital to the market. Against this backdrop, Savills forecasts a transaction volume of EUR 25-30 billion for 2025 as well as a selective compression of prime yields with little movement in initial yields overall.

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