Upturn continues: Investment turnover increases noticeably

BNP Paribas Real Estate publishes investment figures for 2024

In 2024, investment turnover in Germany increased considerably. The total result amounts to around €35.2 billion, which corresponds to growth of almost 27% year-on-year. The strongest increase was recorded by residential investments (from 30 units), which increased by almost 78% to around €9.3bn and also have the highest market share of the total investment volume at just over 26%. In the area of commercial real estate investments, the increase was significantly lower at just under 15% and turnover of just over €25.9 billion, but is within the expected range. In principle, it can therefore be said that the upward trend observed throughout the year also solidified in the final quarter and even accelerated somewhat. This is shown by the latest analysis by BNP Paribas Real Estate.

The most important results at a glance:

• At just under €35.2, investment turnover was 27% higher than in the previous year
• Of this, just under €9.3 billion (+78%) was attributable to the Residential market segment
• Commercial investments account for around €25.9 billion (+15%)
• 76% (€19.77 billion) of commercial turnover is attributable to individual deals
• Portfolio sales totalled around €6.1 billion
• In the commercial market segment, logistics investments are at the top with around €6.9 billion, ahead of retail investments in second place with over €6.3 billion and office investments with a good €5.2 billion
• Berlin is once again at the top of the list of German A-locations (around €3.6 billion)
• Almost all net prime yields unchanged in the third quarter
• Market share of foreign investors increased to almost 43%
• A good 1,100 transactions recorded (commercial only)

“The significant market recovery in the residential sector is particularly remarkable. This suggests that investors remain positive about the medium and long-term prospects of the German housing markets. The increased sales volume is not least due to the further rent increases since the beginning of the year. In conjunction with falling key interest rates and thus also financing costs, purchase prices are expected to rise again, which were already recorded in the high-quality new-build segment in the final quarter. The resulting potential for value appreciation is making residential investments increasingly interesting for investors again,” explains Marcus Zorn, CEO of BNP Paribas Real Estate Germany. This statement is underlined by the fact that the first major value-add deals have now been concluded again. Against this backdrop, it is not surprising that the residential asset class has the highest share of the total transaction volume at over 26%, relegating logistics, retail and office investments to the top spots.

Commercial investment revenue with strong final quarter

There was also a small year-end rally in the commercial real estate investment market segment, with almost €8 billion in revenue being recorded in the fourth quarter. Overall, the annual result of €25.9 billion is almost 15% higher than the comparable figure for the previous year. The markets have thus continued the expected recovery. It is particularly pleasing that not only has the sales volume increased, but also the number of registered transactions is a good 16% higher than in the previous year at a good 1,100, which can be seen as an indication of greater buyer interest across the board. “This positive market development cannot be taken for granted against the backdrop of the continuing difficult economic environment. For 2024 as a whole, GDP development is expected to be in the range of zero growth. A slight recession is also not yet completely ruled out. In addition, the outlook and the mood of the companies do not yet give the all-clear. This is supported by the ifo economic index, which has recently fallen twice in a row. Nevertheless, investor confidence in the long-term development of Europe’s largest economy has increased. Above all, the prospects and potential for value appreciation play a decisive role here and make real estate investments increasingly interesting again,” says Marcus Zorn.

“Tailwind is also coming from the financial markets. Both the ECB and the FED have heralded the turnaround in interest rates and have now lowered the trend-setting deposit rate several times. Although the pace of further interest rate cuts is still uncertain, it is becoming apparent that at least the ECB is likely to continue on its chosen course for some time. The decisive factors for this are not least the very moderate GDP forecasts for Germany and difficult political situations in several EU countries. In principle, the lower interest rate level is already clearly reflected in lower swap rates, which means that financing conditions have already improved noticeably and are likely to improve further. This trend should also stimulate the willingness to invest in the coming quarters,” adds Nico Keller, Deputy CEO of BNP Paribas Real Estate Germany.

Logistics facilities defend their top position

If we only look at commercial investments, investments in logistics real estate have defended their top position, which was achieved for the first time last year. With a transaction volume of just over €6.87 billion, they have taken the top spot among the asset classes and account for almost 27% of total turnover. They were thus able to increase the previous year’s result by 13% and have also come closer to their ten-year average (-7%). It is pleasing to note that the positive revenue development is driven by both individual transactions (share: 52%) and portfolio deals (share: 48%). Investor interest, especially in large-volume properties and packages, has increased noticeably. A total of 19 deals in the three-digit million range were recorded. A good 94% of this is accounted for by foreign buyers. This suggests that German logistics real estate continues to be an extremely attractive asset class, especially for foreign investors.

Retail properties follow in second place, contributing a good €6.3 billion to the commercial investment volume, which corresponds to a share of just over 25%. In relative terms, they thus recorded the highest growth of all asset classes in 2024 and achieved a result that was almost 28% better than in 2023. Demand was directed at very different sub-segments in the broad retail spectrum, which is very positive in principle. The most investment was in specialist shops and supermarkets with around €1.85 billion, followed by department stores with just under €1.77 billion. Here, among other things, a number of cities acted as buyers in order to maintain the attractiveness of their city centres and avoid vacancies. Only slightly less was invested in commercial buildings, which have a sales volume of around €1.75 billion.

As expected, office properties also land on the podium, contributing a good 20% to investment turnover with a transaction volume of €5.21 billion. Nevertheless, the office segment continues to suffer the most from the difficult macroeconomic environment. This is also reflected in the fact that office is the only asset class that generated less investment volume in 2024 than in the previous year (-13%). Many investors are still uncertain about user demand in connection with the rather moderate GDP forecasts and possible effects of higher home office shares. A significant recovery across the board in office investments is only likely to begin when the economy picks up noticeably, which should lead to a significant increase in user demand again. Regardless, some major landmark deals are in the pipeline, the implementation of which should send positive signals for the office investment markets.

Fourth place is occupied by hotels, which contribute a good 5% to the result. With total sales of around €1.41 billion, they were able to increase their previous year’s figure by around 5%. The slightly positive upward trend continues due to increasing investor interest. Investments in healthcare properties also increased slightly. At just over €1.16 billion, their volume is more than 6% higher than the previous year’s result. However, they are still a long way from the very good sales of 2018 to 2022.

Both individual transactions and portfolio sales increased

Both individual properties and portfolios contributed to the increased investment turnover with commercial properties. With a revenue share of around 24%, the portfolio share is still somewhat lower than in many previous years. Nevertheless, parcel sales were able to increase their earnings by a good 8% to currently €6.14 billion. Significantly more investment was made in logistics packages in particular, but the first rays of hope were also observed in the office segment with some smaller portfolio transactions. At just under €19.77 billion, individual properties once again accounted for the lion’s share (76%) of total turnover. Compared to the previous year, they have increased by almost 17%. This was mainly due to retail properties, which more than doubled their result to €5.15 billion.

The share of foreign investors in the total volume of commercial real estate has risen significantly and will be just under 43% in 2024. This means that the participation of these buyers is back at about the level of the long-term average. This development can be seen as a positive signal for the German investment markets, as it underlines that despite the current difficult economic environment, Germany continues to be an important and interesting market for international capital, which is likely to gain further importance in the future and with improved financing conditions.

A-locations with jump in sales

“The fact that investor sentiment has improved and market activities are slowly approaching the mechanisms they were used to in the past is not least evident from the fact that a jump in sales was recorded in the A locations. After the large cities in particular have suffered particularly from the difficult price adjustment processes, they have now apparently heralded the beginning of a catch-up process. With an investment volume of €12.87 billion, they were able to increase their previous year’s figure by around half,” explains Nico Keller. Berlin is by far in first place with a result of just under €3.55 billion, which corresponds to an increase of almost 41%. The sale of KaDeWe to the Thai Central Group made a significant contribution to this. Munich follows in second place with a good €2.68 billion. The Bavarian capital has thus doubled its previous year’s result and has by far the largest increase of all major locations. In Hamburg, the €2 billion mark was also cracked. At €2.28 billion, the Hanseatic city was able to increase its turnover by an impressive 79%. Frankfurt follows in second place with a good €1.62 billion (+36%) and Cologne with just under €1.17 billion. The cathedral city was also able to increase its result disproportionately with almost 92%. The increase in sales is somewhat lower in Düsseldorf at a good 15%, but the billion mark is still exceeded at €1.02 billion. The only A-location with a negative development is Stuttgart, where a transaction volume of only €555 million was registered, which corresponds to a decline of around a quarter.

Almost all yields unchanged

As expected, the slightly lowered key interest rates of the central banks have not yet been directly reflected in the purchase price levels. As a result, stabilization was also predominantly observed in the fourth quarter, so that most yields did not change. The net prime yields for office properties continue to be 4.36% on average in A-locations. The most expensive location is still Munich with 4.20%. Berlin and Hamburg are close behind with 4.25% each. In Cologne and Stuttgart, the quoted remains unchanged at 4.40%, and in Frankfurt and Düsseldorf 4.50% are to be applied. In the logistics market, the prime yield is currently still 4.25% despite the very good demand, and the average for inner-city commercial buildings in the A locations is stable at 3.76%. In retail parks, on the other hand, the prime yield fell slightly by 10 basis points to 4.65%. In contrast, there were no shifts in discounters/supermarkets (4.90%) and shopping centers (5.60%). The situation in the housing market is somewhat different. For new-build properties, the prime yield on average in A-locations fell by 15 basis points to 3.58%.

Prospects

The further development of the investment markets in 2025 will continue to be determined by different framework conditions with sometimes opposing influences on investment activity. The current forecasts for GDP development indicate that the economic environment will remain challenging in 2025. Most economic institutes assume that only modest growth of well below 1% can be expected, if at all. In addition, there are a number of uncertainties regarding further global developments. Keywords include the measures taken by the new US administration, which are not yet clear, for example on tariffs or support for Ukraine, or latent government crises, such as in France or Austria.

On the other hand, there are a number of positive factors that could benefit investment markets. These include the noticeably improved sentiment on the investor side and the growing interest of foreign investors, which is reflected in the results for 2024. In addition, there are some indications that an additional supply could be made available to the market in the next few months. In conjunction with possible further key interest rate cuts and improving financing conditions, there is considerable potential for investors to increase in value in the medium and long term. However, the prerequisite for this is the right timing. There is some evidence that buyers are increasingly concerned with not missing the right time to enter the market. The aforementioned aspects are likely to stimulate and inspire investment markets.

From today’s perspective, there is much to suggest that the positive market influences will outweigh the various influencing parameters, which were already effective in a similar form in the second half of 2024, and that the gradual recovery of the investment markets will continue in 2025. However, transaction volumes that are significantly closer to the long-term averages are unlikely to be achieved again in 2025. Despite significantly better sentiment on the investor side, the macroeconomic environment is still likely to be too challenging for this.

“For 2025, we therefore expect a transaction volume that is likely to increase visibly again compared to the previous year. A result of over €40 billion for investments in commercial and residential properties does not seem unrealistic. However, the individual asset classes will benefit differently from this. The environment for office properties will probably still be challenging in the current year for the time being. In contrast, a more positive development is expected in the residential segment and logistics properties. With regard to yield developments, everything indicates that the lower interest rate levels will lead to slight yield compressions, so that prime yields in most asset classes should probably fall slightly over the course of the year,” summarizes Marcus Zorn.