Market in Minutes Investment Market Germany

More supply on the horizon

Text: Matti Schenk

Commercial and residential property in Germany changed hands for approximately €32.8bn during the first half of 2021. Commercial properties accounted for approximately €22.9bn of this while residential properties were responsible for around €10.0bn. The transaction volume over the last twelve months totalled approximately €69.5bn (see Graph below), reflecting a decrease of one third year on year. In June, properties changed hands for €5.5bn, which was 5% below the twelve-month average.

Activity in the commercial property investment market was rather subdued in the first six months of the year. There were fewer than 900 individual and portfolio transactions throughout Germany, which represents the lowest number of sales in a half year since 2013 (see Graph below) and a decrease of around 7% compared with the second half of 2020. The third wave of the pandemic at the start of the year was a hindrance, with owners of large-volume property in particular deferring plans to put properties on the market owing to the travel and contact restrictions. With vaccines being rolled out and restrictions loosening, there are signs that significantly more product will be brought to the market in the second half of the year. Since investor demand remains very high, the market is expected to enjoy an upturn in the second half of the year. The transaction volume in the commercial property market is likely to exceed the €50bn mark by the end of the year.

The number of transactions in the residential investment market rose once again. Since apartments cannot be substituted and the fundamental data remains favourable for owners in many locations, apartments remain more sought-after than ever. Should the acquisition of Deutsche Wohnen by Vonovia be completed, the transaction volume will leave all historic figures in the shade.

Besides a higher number of transactions and rising volumes in the market as a whole, the remainder of the year is likely to be characterised by two developments. On the one hand, risk-averse capital continues to dominate the demand side and will create further yield compression on core property. The definition of core is even narrower than prior to the outbreak of the pandemic, particularly in the office property sector. At the same time, structural upheaval in the occupier markets is creating increasing opportunities for investors with a strong appetite for risk. Hence, in addition to the large volume of risk-averse capital, a growing provision of capital for non-core investment strategies can also be observed. In view of both the increased quality requirements for office space and the growing importance of ESG criteria, there will be an increasing need to upgrade office properties. In the retail sector, the long-standing upheaval offers potential for the conversion of centrally located properties. The same applies to the hotel sector, in which we are witnessing an increasing number of conversion projects.

Further information, for example the ten largest transactions in June and all charts and raw data for download, can be found in the PDF.