City Survey
Q3 2024
Investment market
Waiting for the upturn in the investment market continues
In the first nine months of 2024, real estate was traded for 24.1 billion euros in Germany. Of this amount, EUR 17.1 billion was attributable to commercial real estate and EUR 7.0 billion to the institutional residential segment of ten residential units or more. In the commercial segment, transaction activity in the third quarter fell only slightly short of the results of the two previous quarters at 5.5 billion euros and around 230 deals. During the entire period from January to September, a slight increase of 3 percent was achieved compared to the previous year.
in commercial transaction volume (+3% yoy)
As in the economy as a whole, the wait for the upswing is shifting to 2025. Market activities are taking place under conditions that are only slowly improving.
After all, the ECB’s second interest rate cut will reduce uncertainty among financiers and investors, even if the still high long-term financing costs will do little to change the refinancing gaps in the short term. We will continue to see forced sales under price pressure – but also buying considerations that can be calculated with slightly positive leverage again.
Transaction Volume in Germany (in bn. €)
Transaction Volume in Germany by Property Type (in m. €)
Investor focus differentiates more strongly in terms of types of use and property types
Even if the overall picture gives the impression that the market is treading water, there are currently some developments that could provide positive impetus for next year.
In addition to the three types of use with the highest turnover, industry and logistics (26 percent market share), retail (22 percent) and office (21 percent), other segments are coming into the focus of investors. Compared to the same period last year, hotel properties doubled their transaction volume to just under one billion euros, which corresponds to a market share of 6 percent. The real estate climate index for hotels shows the strongest recovery in the course of the year and, as the second type of commercial use after logistics, is in the area of positive market sentiment with over 100 points. The volume growth was even higher for mixed-use properties, especially in inner-city locations with a significant retail share. The volume share almost tripled from 4 to 11 percent.
We are also observing a differentiation of investment activities according to property types within the types of use. The largest transaction of the quarter is a shopping center for the first time in a long time. The Pasing Arcaden was sold for 388 million euros by Unibail-Rodamco-Westfield to the Swedish Ingka Group, which is backed by private capital. The second largest single transaction is the Rossio office complex in Messecity Cologne. With over 270 million euros, the first office landmark deal was registered this year. The user as well as buyer of the property, which will be ready for occupancy in 2026, is the city of Cologne.
The largest portfolio transaction in the mid three-digit million euro range is in the industrial and logistics real estate sector. Blackstone acquired an 80 percent stake in the Burstone Group’s Pan-European Logistics Platform (PEL). Around a quarter of the 32 properties were in Germany.
Overall, however, portfolio sales continue to play a subordinate role with a market share of 22 percent. Major deals over 250 million euros can be counted on two hands. The focus with 90 percent of all deals is on the category up to 50 million euros.
Prime Yield Office (in %)
Broad-based yields still in decompression mode
Even though the prime yields of the highest-turnover types of use – offices, commercial buildings in prime locations and logistics properties in the seven largest investment centres – have remained unchanged since the beginning of the year, yield decompression has not yet ended in all areas.
Sluggish sales in decentralised and peripheral locations as well as increasing selling pressure on non-market-compliant properties are leading to further increases in yields across the board. The spread between locations and risk classes continues to increase.
gross initial yields office
Value-add products in particular are often still too expensive, which can also be observed in the absence of opportunity-driven investors and private equity funds.
Outlook: Transaction volume for the full year will probably confirm previous year’s result
The year-end quarter certainly has the potential to be the strongest quarter of the year with a volume of 6 to 7 billion euros. For example, the sale of Berlin’s Upper West high-rise for 400 million euros is expected for the final quarter of the year. The shareholders’ meeting on 17 October will also decide on the sale of an international logistics portfolio by Tritax EuroBox, which contains nine German properties at an estimated purchase price of around 600 million euros. Under these assumptions, this would at least make it possible to repeat the previous year’s result of around 23 billion euros.
Comparison of German Investment Centers (as of Q3)
| German Investment Markets in Comparison | Germany | Berlin | Dusseldorf | Frankfurt | Hamburg | Cologne | Munich | Stuttgart |
|---|---|---|---|---|---|---|---|---|
| Commercial Transaction volume (in million €) 2024 | 17,085 | 2,389 | 670 | 1,059 | 794 | 820 | 2,082 | 369 |
| Commercial Transaction volume (in million €) 2023 | 16,643 | 1,819 | 560 | 503 | 600 | 415 | 921 | 406 |
| Change year-on-year in % | 3 % | 31 % | 20 % | 111 % | 32 % | 97 % | 126 % | -9 % |
| Most Active Buyers | Asset Managers / Fund Managers 31 % | Asset Managers / Fund Managers 65 % | Property Developers 48 % | Asset Managers / Fund Managers 29 % | Asset Managers / Fund Managers 32 % | Public Administration 80 % | Private Investors/ Family Offices 67 % | Private Investors/ Family Offices 29 % |
| Most Active Sellers | Property Developers 19 % | Listed Porperty Companies 52 % | Project Developer 47 % | Corporates/ Owner-Occupiers 25 % | Asset Managers / Fund Managerss 36 % | Asset Managers / Fund Managers 47 % | Open-ended Real Estate Funds/ Special Funds 44 % | Open-ended Real Estate Funds/ Special Fund 32 % |
| Most Important Property type | Industrial & Logistics 28 % | Retail 53 % | Office 38 % | Office 43 % | Office 48 % | Mixed Use 47 % | Mixed Use 47 % | Mixed Use 56 % |
| 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 Q3 2024
Solid results in the industrial and logistics real estate market despite the lack of portfolio transactions
At the end of the third quarter, the German industrial and logistics real estate market recorded a transaction volume of around EUR 4.5 billion. The result was on a par with the previous year (€4.4 billion, +1 percent). In a long-term comparison, the transaction volume is at the level of the third quarter of 2018 and 2019 (4.4 billion and 4.3 billion euros, respectively) and 2 percent below the ten-year average.
The share of 26 percent in the overall commercial investment market illustrates the popularity of the logistics asset class compared to the other types of use. The transaction volume for the first three quarters was at the level of the ten-year average of around 4.5 billion euros, which is a solid result overall. For 2025, we currently expect an overall economic recovery, supported by further interest rate cuts.
transaction volume I&L
Transaction Volume Industrial & Logistics (in bn. €)
Forecast from 2024
Core money is still missing, investors focus on core-plus
The three summer months of July, August and September were characterized by single transactions. Similar to the second quarter, there was a lack of large-volume portfolio transactions. Instead, some larger participations took place. For example, Brookfield acquired a majority stake in a Garbe portfolio in Germany and Austria for a low three-digit million range. In addition, Blackstone acquired an 80 percent stake in the Burstone Group’s Pan-European Logistics Platform (PEL). Around a quarter of the 32 properties were in Germany. Despite the portfolio-heavy first quarter and the aforementioned investments, around 57 percent of the transaction volume in the last three quarters was accounted for by single transactions. Thanks to the share deals, the share of international investors rose to a solid 60 percent. In the area of single transactions, the distribution is balanced at around 1.3 billion euros (international investors) to 1.2 billion euros (national investors). In terms of regional distribution, due to the lack of products within the TOP 7 investment markets, a clear focus on locations outside the TOP regions can be observed.
Since the end of 2023, investors’ focus has been on single transactions in the size range of less than 60 million euros.
While core investors continue to struggle with the effects of the interest rate turnaround and their share is declining at 31 percent, we have been observing brisk momentum among core-plus investors for several quarters, with a positive result of 42 percent. Many investors are aware of the risk of the weakening situation on the rental market and are leading to them becoming more selective in their assessment of the situation.
Prime yields remain stable
At the end of the third quarter, we recorded a gross prime yield of 4.75 percent for core logistics properties with an area of more than 3,000 square meters. For the third quarter in a row, yields were stable.
The last adjustment of the central bank policy rate in mid-September was a positive sign to investors.
gross initial yield I&L
Overall, we find that prime yields of 4.75 percent are still achievable, although liquidity in the market is declining sharply above 20 times the annual rent.
We do not expect purchase prices to recover in the coming months, as rental growth in many locations slowed down over the course of the year and stagnated on a quarterly basis. The weakened demand situation on the rental market will continue to accompany market participants in 2025 and will also influence the dynamics on the investment market. By the end of the year, we expect the transaction volume to be at the level of 2023 in the region of just under 7 billion euros.
Prime Yield Industrial & Logistics (in %)
Another major deal strengthens the position of retail properties
In the first three quarters of 2024, retail properties were traded for 3.8 billion euros in Germany. The retail segment thus continues to be the second largest type of use in the commercial investment market after sales with a market share of 22 percent. As expected, the third quarter of 1.2 billion euros fell by 29 percent compared to the previous quarter, which was significantly influenced by the takeover of the Berlin luxury department store KaDeWe for around one billion euros.
Last year’s retail real estate transaction volume was characterised by an exceptional portfolio transaction of around one billion euros. Taking into account this one-off effect, which did not occur in 2024 as expected, the transaction volume of the first three quarters of this year is stable. On a positive note, the sale of Pasing Arcaden in Munich was once again a retail property that was the largest transaction in the overall market in the quarter under review. The shopping center was sold for 388 million euros by Unibail-Rodamco-Westfield to the Swedish Ingka Group, which is backed by private capital.
retail transaction volume
It is noteworthy that for the first time in a long time, a large-volume shopping center was traded. This fits into the overall picture that the investor focus in search of attractive investments in terms of types of uses and property types is gradually widening.
Due to the market situation, there are currently many attractive buying opportunities in the retail sector – these include in particular inner-city commercial and department stores in prime locations as well as development sites. Forced sales under price pressure, but also purchase considerations based on a gradually improving financing environment and slightly positive leverage again, will characterize and revive the investment market in 2025.
Private investors in particular are taking advantage of buying opportunities and, along with asset managers, are currently the most active group of buyers. Asset and fund managers were involved in 24 percent and family offices and private investors in around 20 percent of all transactions.
Transaction Volume Retail (in bn. €)
Transaction Volume by Type of Building
Small-scale retail segment remains the backbone
At the same time, the focus of transaction activity continued to be in the segment of less than EUR 50 million per transaction, with 91 percent of all transactions concluded between January and September. The portfolio share is currently at a historically low level of 22 percent, but this is expected to change in the fourth quarter, as many portfolio transactions in the food segment are currently nearing completion.
While high-street properties occupy first place in terms of volume with 46 percent market share, ahead of the retail park segment (34 percent) and shopping centers (20 percent), in terms of the number of transactions, specialty stores and retail parks are clearly ahead of inner-city commercial buildings (30 percent) and shopping centers (9 percent) at 62 percent. In the retail park segment, the focus on food-anchored properties continues to be evident, accounting for around three-quarters of the investment volume.
Yield decompression outside the local supply segment not yet over
In the case of local suppliers, the top initial yields have consolidated. At the end of the year, we expect at least stable initial yields, although an initial price increase cannot be ruled out. Currently, the prime gross initial yields for specialty food stores and small local supply centers are 5.40 percent. Retail parks with food anchors are quoted at around 5.70 percent.
Grosgross initial yield food retail
For all other property types, we cannot rule out further yield decompressions, even in the top segment. Here, seller and buyer have not yet come together.
Outlook: Full year result above previous year’s level
We expect a transaction-strong final quarter this year. Based on the current retail real estate transaction volume and the ongoing transactions, for which we expect a contract to be concluded in the fourth quarter, we think it is likely that the order of EUR 5 to 6 billion will be reached by the end of the year.
Prime Yield High Street (in %)
Strong growth due to major transactions in the residential investment market
In the first nine months of 2024, around 7 billion euros were turned over in 238 transactions in the institutional residential investment segment. This represents a significant increase compared to the same period last year, when 5.9 billion euros were invested in 253 transactions. The third quarter is particularly noteworthy, with a transaction volume of around 3 billion euros – the highest since the first quarter of 2023, with an increase of 83 percent compared to the same period last year.
Large-volume transactions of more than EUR 100 million made a decisive contribution to this result and accounted for 50 percent of the total volume. At the same time, every second transaction accounted for a volume of less than 10 million euros. The average deal size was thus around 29.2 million euros.
transaction volume institutional residential segment
Investment focus on A-cities and portfolios
The market dynamics continue to be concentrated in the seven German A-cities, which account for 53 percent of the total volume. In particular, Berlin (2.3 billion euros) and Munich (860 million euros) were the preferred locations in the first nine months. In the third quarter, Munich was able to take the lead with over 500 million euros, followed by Berlin (360 million euros) and Hamburg (73 million euros). The market-defining deals in Munich included the sale of 320 apartments in the Welfengarten and the sale of the Gmunder Höfe.
In addition, six major deals worth EUR 100 million were concluded in the third quarter, including the Vonovia Rhein-Main portfolio for around EUR 300 million. Strong market activity is also evident outside the A-cities, especially in other major cities in Germany. However, the largest deal of the year so far remains the sale of 4,500 apartments in Berlin by Vonovia SE to Howoge with a volume of around 700 million euros.
Stable yields and positive investor sentiment
Over the course of the first nine months of 2024, we have seen a stabilisation in yields for both existing and new-build properties.
Demand for existing properties remains high, with strong buyer groups, especially private and family offices, dominating the market. These investors are increasingly focusing on younger existing properties. This is mainly due to the limited supply of new buildings and the risks associated with the acquisition of buildings that have not been renovated in terms of energy efficiency. In view of the massive increase in energy prices in the future, this could mean considerable additional costs for owners.
Young existing properties in the A-cities achieved an average yield of 3.70 percent, while they were 4.50 percent in other locations. In the area of forward deals, the yield range in the Class A cities is between 4.10 and 4.50 percent. Compared to the same period last year, there were only minimal deviations, indicating that the market correction in the residential investment market has largely been completed. The positive development was further supported by the ECB’s second interest rate cut in 2024. In the third quarter, sentiment brightened again, indicating further stabilization of the market and growing investor confidence.
gross initial yield for existing properties
Rental momentum continues
Despite a slight stabilisation of supply, the pressure on rents remains high. Compared to the same period last year, asking rents in the existing and new-build segments in the A-cities rose by around 6 per cent, with increases in the first half of 2024 being even more pronounced (+8.0 per cent compared to the first half of 2023). The average rents for new rentals for existing apartments are already over 16 euros/sqm (16.20 euros/sqm) in the A-cities and over 21 euros/sqm (21.10 euros/sqm) in the new construction segment. Some cities have shown a particularly dynamic rental price development in the last 12 months. Frankfurt, for example, recorded an increase of 9 percent, while Hamburg, Düsseldorf and Cologne each increased by 7 percent. In the new construction segment, Hamburg stands out with an increase of 16 percent compared to the previous year, while Stuttgart continues to record slight declines in rents. However, the highest rent level remains in Munich at 24.50 euros/sqm, followed by Berlin (21.65 euros/sqm) and Frankfurt (20.90 euros/sqm).
year-on-year rent growth in Class A cities
Even though the figures on the number of inhabitants in Germany from the 2022 census published at the end of June show a population 1.6 percent lower than previously assumed, the long-term demand drivers remain intact.
Further rent increases are inevitable in the face of collapsing new construction figures and make residential real estate in Germany attractive for long-term investors. However, due to improved availability, growth rates will be lower than recently.
Outlook: Increasing market activity expected by the end of the year
While the mood among real estate financiers is becoming increasingly optimistic, there is also increased activity on the investor side. Equity-strong investors, especially funds and real estate corporations, see opportunities in the current market situation and are likely to increase their transaction volumes by the end of the year. In this context, we expect the transaction volume to increase to EUR 9 billion to EUR 10 billion by the end of 2024. The annual result will depend to a large extent on the development of the sales and portfolio adjustment processes of large portfolio holders as well as on sales from insolvencies. The latter are likely to gain momentum in the last quarter.
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.