Chapter 4Investment Market

The seven large investment centres in particular remain strongly affected by the reluctance to buy large-volume individual properties. With a market share of only 40 percent, the top 7 are clearly underrepresented.

Overall, the number of degrees in the top 7 cities remained very manageable at 55. With a transaction volume of 853 million euros, Berlin is by far the market with the highest turnover and, thanks to the major deal, was able to double the volume compared to the previous year. Hamburg owes around 80 percent of its volume to Germany’s largest portfolio transaction of the quarter, in which 14 Hamburg healthcare properties were transferred from Deutsche Wohnen to the municipal HGV Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement at a price of EUR 380 million. Frankfurt, Düsseldorf and Stuttgart missed the 100 million euro mark in some cases.

The clear winners in the continuing preference for small tickets are B and C cities. They doubled their investment volume compared to the start of 2024 from 420 million euros to 790 million euros, which is mainly due to a higher number of transactions and not to increased property sizes. The market share increased from 7 to 15 percent.

After a somewhat quieter start to the year, industrial and logistics real estate is the second largest type of use with a 22 percent market share or 1.2 billion euros in transaction volume. Retail properties occupy third place with 20 percent or 1.1 billion euros. The Designer Outlet Wustermark near Berlin is the second-largest single transaction in this segment since the beginning of the year. This major transaction also dragged on for over a year before seller Nuveen from the USA and buyer Groupe Frey from France reached an agreement. The purchase price is 230 million euros. In addition, the strong trade in local supplier portfolios, which has been very busy since December, continues. In recent weeks, for example, the Canadian investor Slate bought 45 properties for a total of 420 million euros from different sellers in several package purchases. Part of the transaction volume is attributable to the first quarter of 2025.

Despite the portfolio purchases mentioned above, individual deals dominate current market activity with a volume share of 81 percent.

The evolution of long-term bond yields and swap rates, which have increased since the beginning of March due to the looming trade war and the recently adopted investment package, have not yet materialized in the registered financial statements.

However, the fundamental buying interest of institutional capital, including from abroad, is currently much stronger than a year ago, when the beginning of the interest rate cut phase was still difficult to discern.

There are two main reasons for the below-average quarterly result: On the one hand, the marketing processes are dragging on, especially for foreign investors, so that some deals will not take place until the second quarter. On the other hand, there is still a lack of classic core investments.

Many foreign investors want to increase their allocation to the German logistics market and focus primarily on the established regions.

Specialist stores and retail parks with almost obligatory food anchors were once again the dominant type of real estate.

While hardly any reliable transactions can be used to determine prime yields for commercial buildings in prime city locations, there is evidence of a stabilization of prime yields in the retail park segment over the past three months.

Core properties in particular remain in demand. Here, a limited supply meets an increasingly ready demand, but the market is still dominated by a few active investors. Pricing in the value-add and opportunistic segment, on the other hand, is more difficult. Transactions and business plans are examined longer and in more detail, regardless of the investment strategy, because the conservative LCR expectations of investors stand in the way of a market of fast-growing operators and in some cases declining EBITDA margins. Meanwhile, the major hotel brands are positioning themselves for ambitious expansion projects through strategic acquisitions. These include IHG’s acquisition of Ruby and PAI’s investment in Motel One, which sees opportunities in the office-to-hotel conversion sector.

In line with the entire commercial investment market, the majority of smaller tickets were traded in the first quarter. Only one hotel transaction in the size class over 50 million euros took place. A dozen transactions amounted to 10 million euros or less. Accordingly, the average ticket size was less than 15 million euros. The most active buyer groups were private investors and family offices with a market share of 44 percent.

Against this background, more and more platform sales that are currently being prepared or placed on the market can also be observed.

The current volatile macroeconomic environment, which is characterized by great uncertainty due to current economic policy decisions, especially in the USA, makes it difficult to provide an overly concrete outlook for the rest of the year in the hotel transaction market. Nevertheless, the fundamental parameters underlying a hotel investment, such as tourism demand and hotel performance, remain positive. Many transactions, including individual transactions over 50 million euros and larger portfolios, are currently on the market or in preparation. Accordingly, a further revival of transaction activity is expected in the further course of the year.

The market momentum was strongly driven by large-volume transactions of more than 100 million euros each, which accounted for 41 percent of the transaction volume or one billion euros.

Particularly noteworthy is the sale of a nationwide portfolio from the portfolio of the open-ended real estate fund UniImmo: Wohnen ZBI with around 8,000 apartments for around EUR 750 million to the I-Wohnen Group.

At the beginning of the year, the market momentum extends beyond the top 7 cities to smaller locations. This is reflected in the total transaction volume: only 27 percent or 670 million euros were accounted for by the top 7. Berlin (around 346 million euros) and Düsseldorf (111 million euros) were particularly in demand in the first three months of the year. The market-defining deals in Berlin included the sale of 396 apartments in the Reichsforschungssiedlung in Haselhorst and the sale of 167 apartments in Düsseldorf by Instone Real Estate for 80 million euros.

Compared to the same period last year, asking rents in the existing segment rose by around 6 percent in the top 7 cities and by 5 percent in the new construction segment. The average rents for new lettings for existing apartments are 16.75 euros/m² in the top 7 cities and 22.00 euros/m² in the new construction segment. Some cities showed a particularly dynamic rent development in the last 12 months. Hamburg, for example, recorded an increase of 8 percent, while Düsseldorf and Frankfurt each rose by 7 percent. In the new construction segment, Düsseldorf stands out with an increase of 22 percent compared to the previous year, while Berlin recorded the least momentum with 1 percent. The highest rent level continues to be in Munich at 24.80 euros/m², followed by Hamburg (22.75 euros/m²) and Frankfurt (22.60 euros/m²).

The significant decline in the supply of apartments available for rent, both in existing buildings and in new buildings, where supply has even halved, is leading to enormous rent pressure in Class A cities. At the same time, demand continues to rise – driven by more households, influx as well as declining building permits and completions.

The positive sentiment on the investor side is likely to keep market activity high. Forwards, deals and value-add portfolios are increasingly coming back into focus. While the pricing of value-add stocks is not yet complete, there is growing interest from portfolio holders, who are increasingly considering them as an alternative to new construction.

Although long-term interest rates and bond yields have risen significantly since the beginning of March, this has not yet had an impact on transaction activity. However, there could be signs of a deterioration in the coming quarters. If the increased financing costs become entrenched, this is likely to place debt-financed real estate investments in particular more subject to profitability audits and extend the wait-and-see phase. 

Nevertheless, market sentiment remains positive overall due to continued rental growth and high demand for existing properties. Colliers expects a better full-year result for 2025 than in the previous year, which could be around 12 billion euros at best. However, this will depend largely on the economic framework conditions and the development of the financing side.

In order to avoid the increasing competition for core properties in the top 7, economically strong B-cities are a good choice in 2025. Attractive returns can be achieved here with less competition. At the same time, investors benefit from less volatile office leasing markets and lower office vacancies than in the top 7.