In the first three quarters, turnover on the German investment markets was noticeably higher than in the same period last year. Total turnover in commercial real estate amounts to a good €17.9 billion by the end of September 2024. Compared to the previous year, this corresponds to an increase in earnings of around 15%. Sales in the A locations in particular increased disproportionately. The upward trend already observed in the first half of the year has therefore tended to continue. The increase in the residential investment market is noticeably stronger. At just under €5.9 billion, the investment volume (from 30 units) is almost 50% higher than in the same period of the previous year. The total turnover of the German market therefore amounts to almost €23.9 billion. This is shown by the latest analysis by BNP Paribas Real Estate.
The most important results at a glance:
- At just over €17.9 billion, commercial investment turnover was 15% higher than the previous year’s figure
- The result is roughly at the level of the years 2011 to 2013
- 78% (€13.98 billion) is accounted for by individual deals
- Portfolio sales totalled €3.93 billion
- Retail investments lead the way with a good €4.9 billion, logistics investments in second place with around €4.4 billion, ahead of office properties with a good €3.6 billion
- Berlin is once again at the top of the list of German A-locations (€2.66 billion)
- Net prime yields unchanged in the third quarter
- Market share of foreign investors remains at just over 38%
- Almost 800 transactions recorded (commercial only)
“The recovery of the investment markets, which has already been observed since the beginning of the year, continues. With a transaction volume of just over €17.9 billion, the previous year’s figure was exceeded by around 15%. The number of registered sales cases is also about a fifth higher than in 2023, at just under 800. This overall positive development is particularly remarkable when you consider that the markets continue to feel headwinds from the economy,” explains Marcus Zorn, CEO of BNP Paribas Real Estate Germany. After a slightly more optimistic assessment in the spring of this year, the forecasts have currently clouded over again significantly and are more likely to assume zero growth or even a very slight decline in GDP. “As a consequence, the most important sentiment indicators have also developed negatively again. After the ifo business climate index rose noticeably in the spring, it has fallen continuously over the past four months. The trend of the ZEW Indicator of Economic Sentiment was similar, which has also been pointing downwards again for three months. The fact that investors are nevertheless visibly investing more suggests that they assess Germany’s long-term prospects better than they are currently often presented – even if there are considerable differences in the medium-term prospects for the individual asset classes,” says Marcus Zorn.
In contrast to the generally difficult economic environment, the interest rate turnaround that has been initiated is having a positive effect on market activity. Due to declining inflation rates, the ECB has now lowered the benchmark deposit rate twice to the current 3.5%. And the FED has even reduced the interest rate level in the USA by a whopping 50 basis points in the first step. Against the background that inflation in Germany fell to 1.6% in September, there is much to be said for further interest rate steps by the ECB until the end of the year. “This development is also reflected in swap rates, which are currently more than 50 basis points lower than at the beginning of July. Financing conditions are also likely to improve in the following quarters, which should also further increase the willingness to invest, which suggests a slight increase in investment volumes in the fourth quarter as well,” adds Nico Keller, Deputy CEO of BNP Paribas Real Estate Germany.
Retail investments defend 1st place
As in the first half of the year, retail properties continue to lead the ranking of asset classes involved in total take-up. With a transaction volume of just over €4.9 billion, they account for more than 27% of the total result. Compared to the comparable result of the previous year, this corresponds to an increase of almost 30%. Department stores contribute the highest share with around €1.5 billion. In this market segment in particular, many restructurings are currently taking place, which are accompanied by corresponding sales processes. The share of commercial buildings is of a comparable magnitude, to which some major deals have also contributed, such as the sale of Fünf Höfe and Maximilianstraße 12–14 in Munich. In addition, more than €1.2 billion of the volume is accounted for by specialist shops and supermarkets, which underlines the fact that markets with a food focus in particular remain relatively high on investors’ shopping lists.
Logistics investments follow just behind retail properties in second place among the participating asset classes. With an investment turnover of around €4.4 billion, their share totalled 24.5%, which was 20% higher than the previous year’s figure. It is noteworthy that both individual and portfolio financial statements are largely involved in the pleasing result. However, portfolio transactions in particular have increased noticeably, increasing their revenue by around 40% compared to 2023. This underlines the fact that significantly more investor interest can be observed again, especially in the segment of large-volume parcel sales. An indication of this is also the fact that of 14 portfolio deals in the three-digit million range in the current year, eight have been concluded in the logistics segment so far.
Furthermore, the dominant asset class of recent years is only in third place in the current ranking: a good € 3.6 billion, or around 20% of total take-up, was invested in office properties. This was also about a fifth less than in the same period last year. However, the office segment was able to improve its relative position slightly compared to the half-year result. Nevertheless, in absolute terms, it represents the weakest result of the past 15 years. The office segment in particular is currently suffering greatly from the economic headwinds and the gloomy mood in the economy. For many investors, it is currently difficult to assess how demand for office space will develop in the future, which is reflected in subdued investment turnover. Nevertheless, it should be pointed out that office space take-up on the rental markets in the first three quarters was slightly higher than in the previous year and that there are signs of noticeably stronger demand again in the future with stronger GDP growth.
Fourth place in the ranking is secured by hotel properties, which contribute 5.5% to the result. With total sales of €992 million, they just missed the billion euro threshold and thus impressively confirmed the increased investor interest that has been observed for some time in concrete transactions. They were able to surpass the weak previous year’s result by a good 73%. The development in the healthcare segment is in opposite directions. At just over €720 million, the result was 23.5% lower than in the same period of 2023.
Significantly more investment turnover with individual transactions
The positive development of the transaction volume is primarily due to a significant increase in investment revenues from individual transactions. Around 78%, or €13.98 billion, is accounted for by this market segment. This increased the investment volume of the same period of the previous year by 20%. The situation is different for portfolio sales. Here, the corresponding prior-year figure of just over €3.9 billion was roughly maintained. It should be noted, however, that a number of larger portfolio transactions are currently under negotiation and close to being signed, so it can be assumed that package sales will see a noticeable upturn in the fourth quarter.
The share of foreign investors in the total volume of commercial real estate is a good 38% and thus at the same level as in the first half of the year. In general, there is a slowly increasing interest from foreign investors, so it is not surprising that their share is gradually approaching the long-term average of a good 40%.
A locations can grow significantly
“An indication that confidence in the investment markets is increasing again can be seen in the fact that the A locations were able to record considerable sales growth. With an investment volume of just over €9.1bn, they were able to increase their earnings by more than half. After the large locations in particular have suffered for a long time from the difficult financing conditions and the price adjustment processes, they are clearly among the winners so far this year,” explains Nico Keller. Berlin is in first place with a turnover of just under €2.66 billion, which corresponds to an increase of almost 47%. The sale of KaDeWe to the Thai Central Group made a significant contribution to this. Munich follows in second place with €2.05 billion. In the Bavarian capital, as in Berlin, the €2 billion mark was already exceeded in the first three quarters. The management trio is completed by Frankfurt, where a result of just under €1.26 billion was recorded, which corresponds to an increase of 50%. More than one billion euros in investment volume was also registered in Hamburg. At €1.02 billion, the previous year’s result was even improved by an impressive 59%. By far the strongest growth was recorded in Cologne, where sales of €924 million almost tripled the previous year’s figure. At the same time, this is the best result of the last three years. The transaction volume in Düsseldorf is at the same level as in 2023 at €771 million. The only location with a noticeable decline in sales of 24% is Stuttgart, where only € 423 million was recorded.
Returns unchanged in all market segments
As expected, the stabilisation phase in yields, which began in the first quarter of 2024, continued into the third quarter. As a result, prime yields in all asset classes are at the same level as in the middle of the year. At the end of the third quarter, the net prime yields for office properties remained unchanged at 4.36% on average for A-locations. The most expensive location is still Munich with a value of 4.20%. Berlin and Hamburg follow closely behind with 4.25% each. In Cologne and Stuttgart, 4.40% is still to be applied and in Frankfurt and Düsseldorf, the prime yield is 4.50%. In the logistics market, the prime yield remains at 4.25%, and the average for inner-city commercial buildings in A locations remains unchanged at 3.76%. 4.75% of retail parks are in stock, and discounters/supermarkets (4.90%) and shopping centers (5.60%) are also at the same level as in the previous quarter.
Prospects
The further development of the German investment markets in the coming quarters will be shaped by two different trends that will have opposing effects on market activity. On the one hand, there is the stuttering economy, which, contrary to what was hoped for in the spring, is not expected to provide any growth impetus this year. On the contrary, it cannot be completely ruled out that Germany may even slip into a slight recession. From an investor’s point of view, there remains a certain uncertainty as to when the overall economy in Germany will pick up again and thus also boost user demand on the real estate markets. This situation could possibly have a slight dampening effect on the investment volume expected in the next two quarters.
On the other hand, the major central banks have begun to lower key interest rates in the first steps. At the same time, if you look at the significantly declining inflation rates, there is probably still room for further interest rate hikes this year and next. This triggers a number of positive effects from which the real estate markets should benefit. On the one hand, these are significantly improved financing conditions for investors and thus an end to the price discovery phase, and on the other hand, presumably also a brightening consumer sentiment with rising expenses due to lower inflation and at the same time significant wage increases. The user markets should benefit from this and not inconsiderable catch-up effects should be triggered. For investors, this offers very attractive entry opportunities with considerable potential for value appreciation.
From today’s perspective, the overall assessment of these various influencing factors suggests that the moderate upward trend of the current year will continue. The noticeable brightening of investor sentiment and the improvement of the medium-term outlook with regard to the economy as a whole and the interest rate and financing landscape are also decisive for this. A sharp increase in transaction volumes, which are heading towards the long-term average, is likely to take a little longer.
“In summary, we expect the gradual recovery of the investment markets to continue in the following quarters. The investment volume for the year as a whole is likely to be around 15 to 20% higher than in the previous year, although there will still be differences between the individual asset classes. Office investments in particular will probably suffer from the weak economic environment and the resulting uncertainty among investors for a little longer before a noticeable upswing could set in again here. In terms of prime yields, a slight yield compression at the beginning of next year is the most likely scenario, even if the first steps for individual asset classes cannot be completely ruled out as early as the final quarter of 2024,” summarizes Marcus Zorn.
