Residential real estate market Germany

Transaction volume rises while rents grow more slowly

• Investment activity: The transaction volume on the investment market for residential real estate amounted to approx. EUR 8.8 billion in 2024. That was 14% more than in the same period last year. The number of apartments traded rose by a third to around 62,000.
• New construction, value-add & strategic purchases: Around 37% of the transaction volume in 2024 was accounted for by acquisitions of project developments – the highest share Savills has measured since 2009. There were also more sales of value-add products and some large-volume portfolio transactions in secondary locations towards the end of the year.
• Prime yield: The prime yield remained stable at 3.6% in the fourth quarter. A slight yield compression is expected in the current year.
• Outlook for 2025: Slightly higher transaction volume and decline in rent increase rates.

In 2024, residential real estate was traded in Germany for around 8.8 billion euros (transactions of 50 apartments or more). That was around 14% more than in the previous year. The number of apartments sold even increased by a third compared to the previous year and stood at around 62,000. With a transaction volume of almost 3.9 billion euros, the 4th quarter was by far the strongest quarter in terms of sales since the interest rate turnaround. The revival of the market that has been apparent since the spring of last year has thus actually materialized. Marco Högl, Director and Head of Residential Capital Markets at Savills Germany, reports: “This year saw a year-end rally in the residential investment market and the number of transactions increased. A characteristic feature of the residential investment market is that in addition to smaller individual properties, larger portfolios also find buyers and function from value-add to core transactions. This reflects the high demand for residential real estate and shows that investors with very different investment strategies can find suitable products on the German residential real estate market.”

2024 marks the start of the manage-to-green wave

In Savills’ view, 2024 marks the start of a manage-to-green wave in the residential investment market. For example, there was an increase in sales of individual properties and portfolios with the aim of energy-efficient modernisation and upgrading. Högl comments: “The majority of apartment buildings in Germany have significant deficits in energy efficiency. This creates value-add potential through energy-efficient renovations and modernization measures. We have noticed that owners increasingly want to part with such properties. In return, a lot of capital is available for so-called manage-to-green strategies. In addition to project developers, many fund managers are also expanding their focus and launching special value-add vehicles. Last year, there was an increasing number of corresponding purchases, in all size classes, so that we can speak of the start of a manage-to-green wave. We expect that the renovated residential properties will be the future product for risk-averse investors and that many properties will be resold to them in a few years.”

Record high share of project development purchases

While more investors are focusing on manage-to-green strategies, many risk-averse investors continue to focus on new buildings. In total, purchases of project developments accounted for around 3.3 billion euros last year, about twice as much as in 2023. The share of 37% of the total transaction volume is the highest that Savills has measured since data collection began in 2009. The main volume drivers in the project development purchases were two new construction portfolios sold by Vonovia and its subsidiaries to HIH, as well as the Berlin-based Konnekt projects, which were sold by Kondor Wessels and Laborgh to Howoge, and Greenpark, which was acquired by Greystar von Bauwens. Matti Schenk, Associate Director Research at Savills Germany, explains: “Institutional investors in particular want to avoid renovation risks and regulation through the rent brake and continue to rely heavily on residential properties built from 2014 onwards. However, since younger existing properties are relatively rarely for sale, the acquisition of project developments is often the easier way to obtain new-build products. The extension of the rent brake to residential buildings built up to the end of 2018, as brought into play by the current federal government, could lead to a certain uncertainty about the future regulation of these portfolios in the election year 2025, which could at least temporarily exclude some young existing properties from the search profile of some investors. Since the number of building permits was also declining last year and, in view of the further increase in the construction cost index, a revival of new construction activity is not to be expected in the short term, the supply for investors with a new construction focus will become scarcer in the future.”

Strategic purchases of portfolios as volume drivers

In addition to new buildings and manage-to-green products, another segment of the housing market gained momentum last year, according to Savills. Towards the end of the year, for example, several sales of large-volume portfolios of rather simple property and location quality took place. Karsten Nemecek, Managing Director Corporate Finance – Valuation at Savills Germany, comments: “In recent months, large and rather simple apartment packages in secondary locations have also become liquid and have made a significant contribution to the increased transaction volume. It remains to be seen whether these strategic purchases will continue in 2025 and whether investors will pursue an accumulation strategy as in the wake of the Great Financial Crisis. However, very opportunistic products in markets with high vacancy rates are still hardly traded.”
Slight compression of prime yield expected in 2025
Due to the increasing number of sales of portfolios with simple location and property quality, transparency has also returned to this part of the market in the past year, as Högl reports: “Last year’s transactions have shown that prices for larger portfolios of rather simple quality outside the top 7 cities are around 1,000 euros per m². In the value-add segment, prices for larger individual properties in A-cities and attractive B-cities are around 2,000 euros per m². We expect prices to settle at this level for the time being. For the increasingly rare new construction product, we believe that a slight compression of the prime yield is likely in the current year.” In the 4th quarter of 2024, the prime yield remained stable again and thus remains at 3.6%, according to Savills.

Time of active value enhancement measures

With an acquisition volume of around EUR 2.1 billion, the public sector was the second-largest buyer group on the German residential investment market last year. However, almost 1.8 billion euros of this was attributable to the state of Berlin or the state-owned housing associations. In first place among the most active buyer groups were fund managers with a purchase volume of around EUR 3.8 billion. Although there was an increase in sales of larger value-add portfolios last year, private equity investors hardly made an appearance. Nemecek reports: “While numerous housing packages went to private equity investors during the financial crisis, they appeared only selectively and to a lesser extent in this market’s downturn. According to our observation, prices have often not fallen as much and the selling pressure has not been as high as they expected and as would have been necessary for their high return targets. In addition, other investors have come on the scene who want to actively invest in the portfolios and raise values. In fact, value increases in the current market cycle are likely to be achieved primarily through active, i.e. also construction, measures, as we do not expect very strong yield compression or rent increase rates as high as in previous years in the next few years. The latter is mainly due to the low fluctuation and presumably not so strong immigration. A possible expiry of the rent brake or a significant change in the regulatory environment could lead to higher rent increase potential in existing buildings, but a reduction in rent regulation seems to be a rather unrealistic scenario, at least as things stand today.”

Outlook for 2025

For the current year 2025, Savills expects a slightly higher transaction volume, which reflects the overall increase in investor interest in German residential real estate. Nemecek looks ahead: “We are noticing a high level of interest in German residential real estate on the part of both domestic and international investors. On the supply side, residential real estate corporations are likely to have largely completed their sales programme, which is likely to limit the supply of larger portfolios.” Despite the ongoing housing shortage, the signs on the user market are more mixed than in previous years, as Savills researcher Schenk explains: “According to some data during the year, net immigration is likely to have been lower in many cities than in previous years as early as 2024, so that there was less additional demand on the housing market. This could be one reason why asking rents for both re-lettings and new buildings have not risen further on average in the top 6 cities in recent months. Growth in cities is also expected to slow down in 2025, and the gloomy economic environment could slow down the immigration of skilled workers and also make households shy away from moving to more expensive housing. This dampens the short-term prospects for rent increases. The lock-in effect on the housing market is likely to become entrenched, which will further limit rent increases in residential portfolios. However, since a rapid increase in new construction activity is unlikely and this would only take effect in a few years anyway, living space will remain very scarce for some time to come. In view of this initial situation, the fundamentals for portfolio holders and investors remain favourable overall, especially since the Federal Institute for Research on Building, Urban Affairs and Spatial Development expects long-term population growth in the economically strong cities and regions. It is still unclear what measures a future federal government will take in housing policy, but strong deregulation is an unlikely scenario. However, the housing policy vacuum, which is likely to persist for a little longer, is likely to lead to uncertainty among investors and tenants in 2025.”

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