On the German real estate investment market, commercial and residential real estate* changed hands for around EUR 34.6 billion in the past twelve months. Compared to the same period last year (April 2023 to March 2024), this represents an increase of 12%. The 1st quarter of 2025 accounted for approx. 6.9 billion euros, which is roughly the same as in the same quarter of the previous year (approx. 7.2 billion euros). Karsten Nemecek, Deputy CEO Germany and responsible for Capital Markets, comments on the current market environment as follows: “The number of ongoing and upcoming sales processes increased noticeably at the beginning of the year – we therefore expect a slight increase in transaction activity overall in the coming months. However, the decisive factor will be how many of the properties for sale buyers are found. Office properties in particular are up for grabs by many owners, but investor interest in this segment remains limited. Therefore, not every sales process is likely to lead to a successful conclusion. At the same time, the recent rise in interest rates strengthens the incentive to sell, especially for leveraged properties – a factor that could increase the likelihood of closing. A significant increase in transaction volume can only be expected if there is a larger refinancing-driven wave of selling. While this scenario is possible, we believe it is still quite unlikely.”
Repricing for top properties completed
The extent of the liquidity requirement and selling pressure on the owner side is also likely to be a decisive factor for the further development of initial yields. In the first three months of the current year, prime yields remained unchanged for all types of use, ranging from 3.6% for multi-family buildings to 5.8% for shopping centres. With prime yields in most segments largely unchanged for about a year now, Savills expects the repricing triggered by the 2022 interest rate turnaround to be complete. At least the prime yields are likely to move only slightly, although depending on the type of use, even smaller swings in both directions seem realistic. Beyond the top segment, the mixed situation tends to speak for further increases in yields in Savills’ eyes: Rising supply, higher interest rates and foreseeably rising construction costs make falling initial yields seem unrealistic, at least in those segments without strong rental growth prospects. The price gap between top properties and the rest is therefore likely to intensify.
Rising price differential between prime properties and the rest opens up development opportunities
“The increasing price difference between prime properties and the rest of the portfolio makes project developments and their financing attractive, especially since the new construction pipeline is increasingly running empty across all types of use. We are observing an increasing number of investors who are pursuing such investment approaches – from an appreciation to a repositioning to a conversion, all shades are included here. Capital is available above all for the conversion of offices into hotels or commercial residential properties and opens up a new path for some properties that no longer have a future in their previous function,” comments Matthias Pink, Head of Research Germany at Savills.
Residential is the type of use with the highest turnover, healthcare/social properties with the largest growth
Overall, liquidity for office properties remains low. In the past twelve months, Savills has registered a transaction volume of almost 4.7 billion euros, which means a decline of 13% compared to the same period last year and only 4th place of all uses. Residential real estate (approx. EUR 9.8 billion / + 39%) was the largest in terms of take-up, followed by industrial/logistics real estate (approx. EUR 6.7 billion / + 4%) and retail real estate (approx. EUR 5.6 billion / – 1%). Savills recorded the highest year-on-year increase in turnover in healthcare and social real estate, up 62% year-on-year to around EUR 1.6 billion.
Environment remains volatile, which could benefit Germany
“The macro environment of recent weeks and months has been somewhat chaotic and there are many indications that it will remain volatile. In this respect, the further development of the real estate investment market remains difficult to predict. However, with a new federal government and the investment spending packages that have already been adopted, Germany has the opportunity to reposition itself in this environment as the safe haven it was until the interest rate turnaround,” said Nemecek.
* only transactions from 50 residential units
