Residential investment remains the asset class with the highest turnover

The German residential investment market was able to transfer the market recovery that began last year to the new year 2025. The investment volume increased significantly in the first three months compared to the previous year, and € 2.5 billion was invested in larger residential portfolios (from 30 residential units). This means that the residential investment market continues to be the asset class with the highest turnover, well ahead of offices (approx. €1.7 billion) and logistics and retail (approx. €1.3 billion each). Although the long-term average was missed by 40%, the previous year's quarterly result was more than tripled. The visible market recovery is likely to gain breadth and momentum in the further course of the year against the backdrop of the completed price and consolidation phase, the likely easing of monetary policy by the ECB and an above-average increase in rents. This results in the bt the analysis of BNP Paribas Real Estate.

"After the first three months of 2025, the residential investment volume amounted to €2.5 billion. Residential thus remains the asset class with the highest turnover in the German real estate market. While larger portfolio portfolios still had an unusually low market share for the German residential investment market in the past two years, they accounted for the largest share of the total market in the first three months at € 1.5 billion. It is also clearly positive that the first larger nationwide portfolios in the value-add segment were sold again," explains Christoph Meszelinsky, Managing Director and Head of Residential Investment at BNP Paribas Real Estate. "Not only the increased number of registered major transactions, but also the overall significant increase in the frequency of completed transactions shows that the uncertainties for investors are leaving the market and that a sustainable price structure has emerged. Although financing costs have currently risen slightly, the very high rental price dynamics and improved capital availability in the short and medium term suggest that the German residential investment market will continue to gain momentum across the board."

Large-volume deals over €100 million contribute 40% of the total volume

Large deals over €100 million (Ø10 years: 50%) have the highest market share at 40%. After all, there is already an investment volume of over €1 billion in this size segment. Three nationwide portfolios are responsible for this.

Existing portfolios currently dominate the market

One sign of the completed consolidation phase is the significantly higher weight of large-volume portfolios. At 58% (Ø10 years: 46%), this asset class dominated the German residential investment market more strongly than in the previous three years. However, with a cumulative investment volume of just under €1.5 billion, existing portfolios remain significantly below the ten-year average in absolute terms (Ø10 years: just under €2.4 billion).

Equity/Real Estate Funds currently particularly strong on the buyer side

The distribution of the investment volume among the buyer groups is not necessarily typical for the German residential investment market. Equity/real estate funds are by far the strongest buyer group with almost €1 billion or a market share of 39% (Ø10 years: 10%).

Equity/real estate funds are often seen as first movers because they can act relatively flexibly and opportunistically with a high level of equity. Behind them, only real estate companies, special funds and investment/asset managers account for sales shares in the double-digit percentage range.

A-cities less involved than in the previous year

What is striking about the distribution of the investment volume is that the solid investment environment of the A-cities has not been so much sought after recently. For example, the A-cities only have a below-average market share of 37% (Ø10 years: 48%). With an investment turnover of €545 million, Berlin also remains at a level of 22%, which is slightly below the average (Ø10 years: 26%). One reason for this is likely to be the renewed importance of large-volume nationwide portfolios.

Prospects

"The noticeable increase in the number of registered transactions in total as well as large transactions as well as the return of investor interest in the value-add area can be seen as evidence of the completed consolidation and pricing phase. It is noteworthy that the A-cities, usually particularly sought-after as safe havens in phases of weakness, accounted for a significantly below-average share of sales in the first quarter. This is due to the return of the first major deals outside the A-cities and larger-volume nationwide portfolios. This supports last year's market observation: the German residential investment market is increasingly regaining the confidence of investors, is able to assert itself as a reliable cash-flow-generating asset class in volatile times and continue to gain momentum.

Against the backdrop of the German government's recently adopted fiscal policy measures and the US administration's customs policy manoeuvres, further monetary policy easing by the ECB is currently more fraught with uncertainty than ever. However, due to the tendency of the German financial package and the American tariff policy to have the opposite effects on the SWAP rates, borrowing costs are likely to settle at the level found for the time being. The healthy fundamentals on the demand side also suggest a further increase in investor interest. Thus, in addition to the pent-up demand that has accumulated over the years, there has recently been a more noticeable population growth. According to the latest forecasts, the population is likely to continue to increase in the coming years, especially in the top locations, which means that the rental housing market will continue to be under considerable demand pressure.

On the supply side, however, new residential construction will continue to slugge for the foreseeable future and will not be able to meet the existing demand. This has already been reflected in the strongest rent increases in many years. This process is likely to continue in the short and medium term.

For the remainder of 2025, we expect the market to continue to recover both in terms of momentum and breadth. A realistic scenario is an investment volume in the double-digit billion range and the continuation of the yield compression that began last quarter until the end of the year," says Christoph Meszelinsky, summarizing the further outlook.

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