Market in Minutes Investment Market Germany

In search of stable income

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.

Many investors are unlikely to have achieved their acquisition targets for 2020 and will be going into 2021 with a corresponding backlog. In addition, many investors are likely to receive even more investor capital seeking stable income. Beyond the lowest common denominator of ‘logistics, residential and AAA offices‘, investment strategies will likely become more differentiated. Many investors, for example, will view any downturn in the capital values of offices in B-locations as a counter-cyclical opportunity for acquisitions, while others will regard the same properties as having excessive long-term risk and be active on the vendor side. The presence of both vendors and available purchasers is likely to ensure a high commercial transaction volume this year, with the €50bn mark likely being reached once again.

In search of stable long-term income, many investors are now unable to overlook residential property. Accordingly, 2020 delivered the second highest investment volume of all time. With residential property likely to have become more important for many occupiers during the pandemic, demand for residential property could witness structural growth. This assumption, combined with the proven stability of rental income in the sector, is likely to ensure that even more investors turn to residential property. As one of the most liquid and established markets worldwide, Germany will therefore attract particularly strong demand. Consequently, we expect the transaction volume in 2021 to be strong once again and potentially as high as last year’s.

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