City Survey
Q2 2024
Investment market
Investment market continues to tread water
Real estate worth 15.5 billion euros was traded in Germany in the first half of 2024. Of this amount, 11.5 billion euros was attributable to commercial real estate and 4.0 billion euros to the institutional residential segment with 10 residential units or more. This represents an increase of 22 percent in the commercial segment compared to the same period of the previous year.
With the takeover of the Berlin luxury department store KaDeWe by the Thai Central Group for around one billion euros, the retail segment is in second place among the types of use with the highest turnover at the middle of the year with a market share of 23 percent, behind industrial and logistics properties (28 percent) and ahead of office properties (19 percent).
transaction volume
Transaction Volume in Germany (in bn. €)
Transaction Volume in Germany by Property Type (in m. €)
Manageable number of major deals in TOP 7 cities mainly opportunity-driven
In the case of Berlin, the major transaction accounts for more than half of the transaction volume there in the first half of the year. But even in the German capital, as in all other TOP 7 markets, transaction activity has levelled off for the second year in a row well below the long-term average after the end of the interest-driven supercycle. Against this background, the mostly positive year-on-year comparison must be put into perspective because it comes from a low level.
Large deals remain the exception, office landmark deals as in the peak phase of the cycle are completely absent. The currently active buyer groups also tend to stand for opportunity-driven business, which has emerged as a result of the massive changes in the interest rate and financing environment since July 2022, but also due to structural changes in demand, especially in the office sector.
Since the beginning of the year, private investors and family offices have already become active several times in core investments in the three-digit million euro range. Overall, this group of buyers has moved into second place behind asset and fund managers (28 percent) with a market share of a good 16 percent, overtaking open-ended real estate and special funds (12 percent), one of the top buyer groups of the low interest rate phase. One transaction example from the second quarter is the acquisition of the development site Opernplatz 2 in a prime location in Frankfurt for around 100 million euros, which stems from a Signa insolvency. The office and commercial building An der Hauptwache 1, which is already under construction, is also an emergency sale from the Signa insolvency and was acquired by the Frankfurter Sparkasse for around 80 million euros for its own occupancy. The fall in prices and the limited number of bidders are a frequent purchase argument due to the current market situation. In addition, in recent months, the public sector has often been registered as buyers of properties that characterise the location in order to prevent building ruins that damage the image and at the same time create attractiveness-enhancing utilisation. The purchase of the department store at Wehrhahn 1 in Düsseldorf’s 1a business location was made with the aim of building the new opera house on this site. One of the largest transactions in Germany is the acquisition of the northern site of Koelnmesse including mixed-use ancillary buildings by the City of Cologne for 385 million euros.
Sales from insolvencies increased to 21 percent
Overall, the share of insolvency sales in the total transaction volume rose from 12 to 21 percent within three months. Further large-volume projects or landmark buildings are expected to cause this share to grow further in the course of the year. In addition to the market volume, which is far from the old orders of magnitude due to massive devaluations, such sales above all have a signal effect for the revival of transaction activity in the TOP 7 cities.
Prime Yield Office (in %)
Return to small batch sizes as the “new normal”
The market is currently in a transition back to a ‘new normal’. The conclusion of several major deals of 100 million euros upwards per quarter was a typical phenomenon of the low interest rate environment and the resulting liquidity glut.
An evaluation of office single deals since 2013 shows that in the period from 2018 to 2021, around 10 percent of transactions were made with properties larger than 120 million euros. Since the beginning of 2023, this share has fallen to around 1 percent. The median has fallen from 27 million euros since the peak in 2021 to 14 million euros most recently. This corresponds to the level of 2014.
Yields in the top range largely stable
Compared to the previous quarter, hardly any more adjustments were registered in the prime yields in the TOP 7. Yields continue to be close together, especially in the office segment with values between 4.50 and 5.00 percent. However, sluggish sales in decentralised and peripheral locations as well as increasing selling pressure for non-market-compliant properties are leading to further increases in yields there. The spread between locations and risk classes continues to increase.
Gross Prime Yield Office Top 7
Outlook: Investment market will slowly increase transaction volume at the end of the year
The interest rate turnaround has an important signal effect for future market development. Better predictability of the interest rate path helps to reduce uncertainty in the financing environment, although the number and amount of expected interest rate cuts has already been significantly reduced compared to the beginning of the year.
Preparatory sales activities are increasing noticeably, even though extended purchase processes and continued high financing costs mean that only a gradual increase in transaction volume compared to the previous year is expected for this year.
Key figures for the German investment market
| German Investment Markets in Comparison | Germany | Berlin | Dusseldorf | Frankfurt | Hamburg | Cologne | Munich | Stuttgart |
|---|---|---|---|---|---|---|---|---|
| Commercial Transaction volume (in million €) 2024 | 11,477 | 1,809 | 550 | 551 | 490 | 487 | 1,549 | 126 |
| Commercial Transaction volume (in million €) 2023 | 9,421 | 1,416 | 500 | 303 | 438 | 226 | 607 | 356 |
| Change year-on-year in % | 22 % | 28 % | 10 % | 82 % | 12 % | 115 % | 155 % | -54 % |
| Most Active Buyers | Asset Managers / Fund Managers 28 % | Asset Managers / Fund Managers 73 % | Property Developers 44 % | Private Investors/ Family Offices 27 % | Property Developers 21 % | Public Administration 79 % | Private Investors/ Family Offices 58 % | Private Investors/ Family Offices 63 % |
| Most Active Sellers | Listed Porperty Companies 19 % | Listed Porperty Companies 59 % | Project Developer/ Property Developer 49 % | Listed Porperty Companies 42 % | Open-ended Real Estate Funds/ Special Funds 22 % | Asset Managers / Fund Managers 79 % | Open-ended Real Estate Funds/ Special Funds 58 % | Property Developers 60 % |
| Most Important Property type | Industrial & Logistics 28 % | Retail 58 % | Building Site (Commercial) 32 % | Office 54 % | Office 48 % | Mixed Use 79 % | Mixed Use 62 % | Mixed Use 61 % |
| Prime Yield Office | 4.90 % | 5.00 % | 4.95 % | 5.00 % | 5.00 % | 4.50 % | 4.80 % | |
| Prime Yield Retail | 5.00 % | 5.00 % | 4.85 % | 4.50 % | 5.00 % | 4.25 % | 4.80 % | |
| Prime Yield I&L | 4.75 % |
Data as of Q2 2024
Positive result on the German industrial and logistics real estate market
The German industrial and logistics real estate market closed the first half of the year with a transaction volume of around 3.2 billion euros. Compared to the below-average result of the previous year, around 63 percent more was invested in industrial and logistics properties. This is a positive result overall and confirms the recovery of the market. In a long-term comparison, the result is thus in line with the ten-year average. Thanks to a strong first quarter, the logistics sector continues to be the highest-turnover type of use within the commercial real estate market, with a market share of 28 percent.
The long-awaited rate cut was already priced in and has no direct impact on the markets, except that the expected trend reversal has at least been confirmed. Apart from the completed transactions, we are also observing stronger momentum in the market in general. The need for advice on the buyer’s side has increased and the requested purchase price estimates for owners are increasing.
transaction volume I&L
Transaction Volume Industrial & Logistics (in bn. €)
Forecast from 2024
Core-plus transactions and international investors characterize the transaction activity
The second quarter was weaker compared to the first three months of the year. This was mainly due to the lack of portfolio transactions. Worth mentioning here is the most recent portfolio purchase by P3, which acquired 12 logistics properties from VIB Vermögen AG. International investors in particular have been active since the beginning of the year. While the second half of 2023 was dominated by national money, the share of international investors accounted for a solid 56 percent at the end of the first half of the year. Overall, the majority of investments took place in the core-plus segment, which accounted for around 44 percent of the transaction volume.
The first half of the year was characterized by a significant decline in core transactions, while the transaction volume in the core-plus segment remained almost identical to the second half of last year. Buyer ambitions in the value-add space have been held back by a lack of suitable investment products, but the number of offers to buy shows that this segment is particularly active.
One of the most market-defining transactions in the second quarter was the sale of the Amazon property in Helmstedt, which was bought by Ampega Asset Management for Talanx for a low three-digit million amount. With the purchase of the Fiege Mega Center in Burgwedel by Mirastar/KKR for a mid-double-digit million amount, another market-defining transaction outside the TOP 8 logistics regions was observed. Overall, the TOP 8 locations accounted for around 35 percent of the transaction volume.
Stable Yields
The gross prime yield for core logistics properties with an area of more than 3,000 square meters was also 4.75 percent at the end of the second quarter.
We continue to observe that constant multipliers of between 20x and 22x can be achieved for prime properties, although the depth of the market here is limited. Due to the dynamic core-plus market, we expect a transaction volume of 7 billion euros by the end of the year.
Gross Prime Yield I&L
Prime Yield Industrial & Logistics (in %)
Retail real estate remains more in demand than offices
In the first half of 2024, retail properties were traded for 2.6 billion euros in Germany. After a very quiet start to the year, the takeover of the Berlin luxury department store KaDeWe by the Thai Central Group for around one billion euros had a significant impact on earnings. This transaction accounts for 38 percent of the half-year volume. The retail segment is thus once again the second strongest type of commercial use in terms of sales behind industrial and logistics properties with a market share of 23 percent.
transaction volume retail
Apart from the major deal, the big picture remains unchanged. As in the market as a whole, small-volume single deals and small-scale portfolios form the backbone of the transaction activity. Around 90 percent of all retail property deals are in the order of less than 50 million euros. Around 26 percent was accounted for by portfolio sales.
Transaction Volume Retail (in bn. €)
Transaction Volume by Type of Building
Takeover carousel of department stores continues to turn
High-street real estate currently has the largest market share of 61 percent, especially because of the KaDeWe-transaction. Department stores are repeatedly the subject of share purchases or transactions because of their favourable location, but also beyond, as the current complete takeover of seven Galeria properties by RFR shows. Cities are also increasingly acting as buyers in order to prevent image-damaging building ruins and vacancies in prime inner-city locations and at the same time to create attractiveness-enhancing usages. The purchase of the department store at Wehrhahn 1 in Düsseldorf’s 1a business location was made with the aim of building the new opera house on this site. Since it is essentially a land deal, it falls out of the transaction statistics for retail properties.
Trade in department stores and commercial buildings in prime city centre locations has risen sharply since the beginning of the year because most of them come from the insolvency estate of large real estate players such as Signa or Centrum. The share of fire sales in the transaction volume in the retail segment has risen from 22 percent to more than half in the last three months alone.
Retail warehouse segment remains in the focus of investors
The specialist retail segment follows in second place among the business types with the highest turnover at 35 percent, 75 percent of which have a food anchor. Retail warehouses and retail parks continue to be one of the main area of current investor interest. In the past six months, they accounted for 64 percent of all registered transactions. Almost two-thirds of these are local supply properties. These include the sale-and-lease-back transaction of the Chase portfolio with ten Edeka supermarkets, which was closed for around 61 million euros with the Greenman Open fund.
Owner-occupiers and private investors are the most frequent investors
Private investors and owner-occupiers currently play the largest role as a buyer group alongside asset managers. Family offices and private investors were involved in a quarter, asset and fund managers in around 19 percent and owner-occupiers in a good 14 percent of all transactions. These investor groups with strong equity capital are determined to take advantage of the favourable entry opportunities and the low bidding competition. Their willingness to accommodate the seller in price negotiations is currently higher than usual on the market. However, the prerequisite is that they are core products. Market-typical returns cannot therefore be reliably derived for the high-street sector, and the same applies to the above-mentioned insolvency sales.
Since the beginning of the year, there has been more evidence of retail warehouse yields, especially in the food-anchored segment. Currently, prime yields for grocery stores remain unchanged at 5.40 percent (gross). Retail parks with food anchors are quoted at around 5.70 percent. Based on these peak values, the yield requirements rise significantly with increasing property size and decreasing food content.
Gross prime yield for food retail
The investment market for food-anchored retail warehouses and neighbourhood centers continues to develop positively and enjoys steady capital inflows, both in the core and value-add segments. Bidder competition situations can already be observed here, which suggest slight yield compressions.
Outlook: Further market revival expected in food-anchored retail warehouse segment
Currently, some portfolio holders are examining the sale of large-volume inner-city shopping centers and hybrid malls, which could strongly dominate the supply in the retail segment in terms of volume in the second half of this year and in 2025. In addition, we are currently observing lively market soundings, both on the seller and buy side, so that we expect a further market revival in the coming months.
Prime Yield High Street (in %)
Overall subdued first half of 2024 on the investment market for residential real estate
The first half of 2024 was subdued in the institutional residential investment segment overall, with a transaction volume of 4.0 billion euros. The transaction volume was around 7 percent below the level of the same period last year (4.3 billion euros). At 2.6 billion euros, the result for the second quarter was almost 80 percent higher than in the first quarter of the year. The improved result in the second quarter can be attributed to the fact that large-volume portfolio transaction activity was again observed, which was completely absent at the beginning of the year. At 1.4 billion euros, portfolio transactions accounted for only around 43 percent of investment turnover in the first half of the year (same period last year: 67 percent). The recovery is also evident in the number of registered transactions, which stood at 163 in the first half of the year, of which 91 were in the second quarter.
65 percent of the transaction volume was accounted for by the A cities with a concentration on Berlin (around 1.9 billion euros). The sale of 4,500 apartments by VONOVIA SE to Berlin-based Howoge with a volume of around 700 million euros and the sale of the Best of Berlin portfolio by TREI Real Estate to MEAG, also in Berlin, had a particular impact on the market. The latter sale was also the second major forward deal in the first half of the year, after almost no transaction activity in this segment in the previous year.
transaction volume in the institutional residential segment
The prime yields of 3.85 percent for existing properties in the A cities and 4.50 percent in other locations were confirmed in the first half of the year and represent the new yield level after the price correction. Along with the first interest rate cut by the ECB, the mood brightened somewhat in the course of the first half of the year.
Gross prime yield for existing properties in Tier I cities
Trend towards higher demand for projects and forward deals continues
On the product side, demand continues to be strongly oriented towards existing properties, especially with a focus on young properties built in the last 10 to 20 years. The yield in the forward deals segment was stable at 3.80 percent in the A cities and 4.00 percent in other locations at mid-year. The micro-living segment is experiencing high demand from investors, but has been cautious with regard to specific transactions so far this year.
The uncertainties regarding possible regulation in the furnished living segment have slowed down concrete transactions in the course of the year so far. At the middle of the year, a transaction volume of around 200 million euros was registered in the micro-living segment. After a slight increase in the prime yield in the first quarter, it rose again slightly by 20 basis points to currently 4.50 percent in the A cities in the middle of the year
High rental momentum continues so far in 2024
The strong rental growth of recent years continued unabated in 2024. In the A cities, asking rents in the existing and new construction segments rose by around 8 percent compared to the same period last year. For example, the average asking rent for new lettings in A cities is 15.80 euros/m² in mid-2024, and 20.90 euros/m² in the new built segment, although a differentiated picture emerges between the individual cities and not all cities show rent growth – in the last 12 months, for example, a slight decrease in asking rents for new built apartments has even been observed in Düsseldorf and Stuttgart. Due to the expected massive decline in new residential construction – the number of permits, which has continued to fall steadily since the beginning of the year, recently confirms this trend – the pressure on rents remains high. After a steady decline in the number of apartments offered for rent over several quarters in previous years, the supply volume increased slightly again in the first half of the year, thus improving availability somewhat after a long time. Nevertheless, we expect rents to continue to rise in all segments for the remainder of 2024.
rental growth in Tier I cities
Outlook: Solid full-year result expected for 2024 – rents rise at lower pace
Even though the population figures published at the end of June from the 2022 Census show a population 1.6 percent lower than previously assumed, and the population is thus growing more slowly than assumed, the long-term demand drivers resulting in increased demand for housing remain intact. Further rent growth is inevitable in the face of collapsing new construction figures and make residential real estate in Germany attractive for long-term investors. We therefore expect significant rental growth in the A cities in 2024, even if the growth rates will be lower than recently seen at around 8 percent due to improved availability.
Investor demand for investment product in all segments of the residential sector should continue to rise, and the mood of the players and the willingness to invest in housing is generally high. As a result of the ECB’s interest rate cut and further expected interest rate cuts, we anticipate an improvement in financing conditions and a slight decline in financing costs in the second half of the year, which should contribute to higher investment activity in the course of the year. Young and ESG-compliant properties will continue to be the focus of investors, as well as larger portfolios. The first major transactions of new built projects and forward deals are indicators of rising demand in this segment as well. Demand impulses on the buyer side will come from institutional capital with a focus on private equity and capital-strong players such as family offices in the course of the year, while on the sell-side large portfolio holders, project developers and distressed sellers in particular will be more active in the course of the year due to liquidity pressure and will bring product to the market.
The full-year result will continue to depend in particular on how the sales and portfolio adjustment processes of large portfolio holders as well as sales from insolvencies develop in the course of the year. We expect higher activity in the latter in particular in the second half of the year.
The new construction, projects and forward deals segments showed more positive signs again with the sales of the Greenpark project to Greystar in the first quarter and the Best of Berlin portfolio to MEAG in the second quarter – this should support the overall market if follow-up activities become apparent in the segment. Despite the overall subdued first half of the year, we believe that a full-year result in the region of 10 billion euros is possible in an improved overall residential real estate environment.
Transaction volume of office and commercial buildings outside the top 7 significantly improved in the second quarter
In the first half of 2024, around 980 million euros were invested in office and commercial buildings outside the top 7, a decline of around 18 percent year-on-year. However, the number of transactions remained largely stable. In the first half of this year, 69 transactions were notarized, compared to 72 in the same period last year.
transaction volume outside the top 7
The lower transaction volume is mainly due to the lower prices in all risk classes. The higher transaction volumes in the second quarter compared to the first quarter did not come as a surprise to us, as many investors signalled to us at the beginning of the year that they wanted to buy more actively again. The targeted investments are now beginning to materialize and result in correspondingly higher market activity.
Furthermore, it is noticeable that there have been fewer transactions in the core segment so far this year – the share of the volume was just under a fifth. In the last five years, this risk class accounted for an average of just under a third of the transaction volume. On the other hand, we observed slightly more opportunistic investments and owner-occupiers, who acquired properties more often than in the past.
Further price adjustments in the first half of the year
While gross prime yields in the top 7 have largely moved sideways, they have continued to rise in B&C cities. On average, the prime yield for prime office and commercial buildings in central locations in B cities was around 5.70 percent at the end of June 2024, an increase of 50 basis points compared to the end of 2023. In C cities, very good office and commercial buildings were available on average for around 15.5 times or around 6.45 percent (+60 basis points compared to the end of 2023) prime yield.
In view of the low number of transactions, especially of premium properties, it is still difficult to make statements about pricing. As expected, prime yields have risen again. The average prime yield in the B cities is currently roughly at the level of the prime yields in B locations within the top 7. The spread between the gross prime yields in central locations there and the B cities has widened again and is approaching the historical average, so slight upward adjustments are expected in the further course of the year.
Gross prime yields in B cities
Transaction volume office-retail mix buildings outside the Top 7 markets and in Tier 2&3 cities (in bn. €)
Transaction volume by region
Outlook: Further revival of transaction activity beyond the summer
Almost 50 percent of the transaction volume in the current year was only achieved in the months of May and June, so the second quarter was significantly stronger than the first quarter of the year.
The interest rate cut in June was an important signal to the market and has improved the predictability of financing on the part of investors. Nevertheless, interest rates remain high and are weighing on real estate investments in general. Nevertheless, we are currently registering an increase in preparatory sales activities again, as owners have largely accepted the new market environment and price level and are investigating possible sales. The challenge remains to find the right capital for the corresponding product. Investors are no longer feeling the investment pressure they felt during the interest-rate-driven supercycle and are acting more cautiously and selectively. Nevertheless, capital for office and commercial buildings in B&C cities is still selectively available.