City Survey

Q4 2023

Chapter 4Investment market

4.1Weak investment year 2023 with slight market recovery in the second half of the year

In Germany, institutional real estate was traded for 32.9 billion euros in 2023. Of this amount, EUR 8.8 billion was attributable to the institutional residential segment (Minimum 50 residential units) and EUR 24.1 billion to commercial real estate. The latter recorded an 11 percent decline in transaction volume in the year-end quarter, which is traditionally the strongest in terms of volume in the long-term trend, compared to the previous quarter. In terms of volume, the fourth quarter of 6.4 billion euros is ahead of the two very quiet first quarters of 2023. The number of deals reached the highest quarterly figure of the year at 269, which indicates an overall increase in market activity from a low level.

In a long-term comparison, the full-year result falls back to the level of 2011, but is still above the low point of the financial crisis years 2008 to 2010, which in some cases was well below EUR 20 billion. Compared to the average of the interest-rate-driven supercycle from 2013 to 2022, the transaction volume has more than halved to minus 52 percent. 

bn. EUR
transaction volume

In the past year, the brake marks of the interest rate turnaround from 2022 arrived on the market with a time lag. Investors’ conviction that the peak of the rate hike cycle is likely to have been reached and that the financing environment has improved again compared to the previous year will only have an impact in the coming months.

The macroeconomic outlook deteriorated again at the end of the year. In addition to weak global economic stimulus, the wars in Ukraine and Gaza, structural deficits and the uncertain budget situation since the November ruling of the Bundesverfassungsgericht are weighing on the economic and consumer climate in Germany. An economic recovery, at least moderate, is not expected until the second half of 2024.

Transaction Volume in Germany (in bn. €)

Transaction Volume in Germany by Property Type (in m. €)

Low transaction activity in the office segment slows down market recovery

In the office segment, the most important and historically most liquid type of use, the consolidation of hybrid working is another stress factor.

According to our analyses, obsolescence risks, which are caused by increasing location and quality requirements of new working environments, but also by increasing ESG requirements, affect up to 69 percent of the office stock in the TOP 7.

Such obsolescence triggers high capex and, in addition to the continuing high borrowing costs, flows into the purchase price calculations of potential buyers. On the other hand, there are existing investors who, under the influence of low financing costs and high liquidity pressure, bought mainly large-volume landmark properties at record prices during the long boom phase. There continues to be a high level of interest in first-class products from investors with strong equity capital, especially from family offices. Although prices are no longer being paid as they were 24 months ago, the current prime yields are being exceeded in some cases.

Landmark deals, which in previous years mainly shaped transaction activity in the seven office centres, were almost completely absent in 2023. The share of investment centres in the total German investment volume shrank drastically to around one third and amounted to EUR 7.9 billion. The last time the transaction volume of the top 7 fell below the EUR 10 billion mark, we were at the height of the financial crisis. In total, just seven office transactions in the order of EUR 100 million were completed in 2023. The highest price of EUR 157 million was achieved in the sale of the former Unilever building in Hamburg. This transaction ranks just 8th among all individual transactions, which are led by the sale of shares in the Berlin luxury department store KaDeWe Berlin in the upper three-digit million euro range from the first quarter. 

Due to the scepticism of many investors with regard to future user demand and thus the security of cash flows, the office sector collapsed by around 82 percent compared to the ten-year average and lost its dominant position as the type of use with the highest transaction volume for many years. At the end of the year, it was in 3rd place with a market share of 20 percent. In second place, with 23 percent, are retail properties, which recorded the largest transaction of the year with the sale of x+bricks’ portfolio of 188 local supply properties to the Canadian asset manager Slate for around one billion euros. For the first time, industrial and logistics properties topped the list of all segments with 28 percent. Thanks to numerous portfolio transactions in the second half of the year, the sector was able to match its long-term average in terms of transaction volume.

I&L market share of transaction volume

Price adjustments in the logistics sector almost complete

High rental growth potential due to the increased relevance of logistics properties in recent years in the face of scarce supply is boosting the attractiveness of the segment and ensuring a persistently high willingness to invest on the buyer side. At 20 basis points in the past three months, the yield decompression in the prime yield for logistics properties, which currently stands at 4.70 percent, has been slightly lower than in other segments. Prime yields for prime offices in the top 7 markets are in a range of 4.50 percent in Munich and 5.00 percent in Düsseldorf and Cologne after an increase of 20 to 30 basis points. Even though a large part of the corrections is likely to have already been completed, we expect yields to rise to around 5.25 percent on average in the top 7 by the second half of 2024, based on medium risk premiums on ten-year German government bonds.

office gross prime yield in the top 7

Prime Yield Office (in %)

Outlook: Transaction volume in 2024 slightly above 30 billion euros realistic

2024 will remain challenging, despite expected low economic growth and increased predictability of the financing environment. The wave of insolvencies is unlikely to be over yet.

According to our calculations, the persistently high financing costs for follow-up financing this year will lead to a debt financing gap of around EUR 5 billion, which is not available to the transaction market.

In both cases, however, the increased need to raise capital also leads to increasing selling pressure and thus more transaction activity. The insolvency cases of project developers that became known in 2023 alone have a project volume of more than EUR 5 billion in the commercial sector in the top 7. Against this backdrop, we believe that a transaction volume of around EUR 30 billion is achievable for 2024.

Key figures for the German investment market

German Investment
Markets in
Transaction volume
(in million €) 2023
Transaction volume
(in million €) 2022
Change year-on-year
in %
-54 %-64 %-77 %-86 %-69 %-43 %-70 %-56 %
Most Active BuyersAsset Managers /
Fund Managers
24 %
Asset Managers /
Fund Managers
36 %
Asset Managers /
Fund Managers
30 %
Real Estate Funds /
Special Funds
21 %
Public Sector
39 %
Asset Managers /
Fund Managers
26 %
Corporates /
29 %
Most Active SellersProject Developer /
Property Developer
Project Developer /
Property Developer
Corporates /
Asset Managers /
Fund Managers
Asset Managers /
Fund Managers
Project Developer /
Property Developer
Private Investors /
Family Offices
Private Investors /
Family Offices
Most Important
Property type
Mixed use
Prime Yield Office4.90 %5.00 %4.95 %4.80 %5.00 %4.50 %4.80 %
Prime Yield Retail4.90 %5.0 %4.85 %4.70 %5.00 %4.50 %4.80 %
Prime Yield I&L4.70 %

Data as of Q4 2023

4.2Logistics real estate most sought-after segment of the year thanks to numerous portfolio sales in the second half of the year

Despite the difficult market environment, the German industrial and logistics real estate market ended 2023 with a solid transaction volume totalling around EUR 6.7 billion. Compared to the previous year, the annual result was missed by 28 percent. In a long-term comparison, the transaction volume in 2024 was at the level of the ten-year average (EUR 6.3 billion). In the first half of the year, transaction activity was significantly influenced by interest rate developments and financing costs. The end of the interest rate rally was not heralded until autumn 2023. 

bn. EUR
transaction volume I&L

It was not until the third quarter that we registered a noticeable recovery in transaction activity. As a result, around 70 percent of the total transaction volume was generated in the second half of the year.

In addition, we note that the investor sweet spot has narrowed in 2023 and is currently in the range of EUR 40 million to EIR 70 million.

Transaction Volume Industrial & Logistics (in bn. €)

Forecast from 2023

Portfolio transactions shape the second half of the year

Portfolio transactions were the main driver of transactions in the third and fourth quarters. Overall, they accounted for around 35 percent of the transaction volume, which is in line with 2020 levels. The record value from the previous year (40 percent) was narrowly missed. Overall, a solid result was achieved with just under 25 portfolio deals. The largest portfolio transactions took place in the third quarter. The most market-defining deal was Deka’s participation in eight VGP project developments, amounting to around EUR 560 million. This was followed by a portfolio consisting of six properties, which the joint venture of DFI Real Estate and Hansainvest Real Assets purchased for around EUR 270 million. In the fourth quarter, two portfolio sales of more than EUR 100 million took place, including the purchase of several properties in Hamburg’s Billbrook district, which the Kaldox Group completed for a low three-digit million amount. Both national and international buyers were equally active in portfolio purchases. In terms of total transaction activity, national buyers were the most active group, accounting for around 53 percent of the transaction volume. This is in line with the figure from 2021 (52 percent). In the previous year, the share of domestic buyers was around 48 percent. Most of the foreign capital comes from European countries.

Overall, we find that the buyer and seller sides have quickly found each other in terms of pricing. In addition, the large number of transactions that took place in the second half of the year provided more evidence and certainty in pricing.

Interest rate adjustments in the third quarter lead to slight price corrections  

At the end of the year, Colliers recorded a gross prime yield of 4.70 percent for core logistics properties with an area of more than 3,000 square meters. While the first half of the year was marked by uncertainties and the low number of transactions made it difficult to determine returns in line with the market, general market conditions were noticeably more favourable in the second half of the year thanks to the stabilisation of the interest rate environment and financing conditions, resulting in a large number of core and core-plus transactions. 

With a market share of around 28 percent, logistics was the strongest type of use within the commercial real estate sector. This is a clear statement that the market for industrial and logistics real estate is particularly robust compared to the other sectors.

prime gross initial yield I&L

The above-average positive development of rental prices, which will not lose momentum for the time being, is the main reason for many investors to invest in logistics assets. We are realistic about 2024 and expect the positive trend to continue.

In addition, the lower SWAP rates will provide more stabilization. Further portfolios are in the marketing phase and are expected to be signed in the first half of the year. In addition, we see potential for transactions that were put on hold due to changing market conditions in 2022 to get back onto the market.

Prime Yield Industrial & Logistics (in %)

4.3Retail remains top-performing commercial segment thanks to high-volume portfolio deal

In 2023, retail real estate was traded for EUR 5.5 billion in Germany. This is the lowest transaction volume since the height of the financial market crisis and corresponds to just under half of the ten-year average. While in the first nine months of the year the general transaction weakness in the investment market in the retail segment was significantly lower than in other sectors, the year-end quarter disappointed with a historically low quarterly result of significantly less than one billion euros and fewer than 40 registered transactions. As a result, the retail segment lost its leading position as the type of use with the highest number of transactions achieved over the course of the year and at the end of December landed in second place with a market share of 23 percent, behind industrial and logistics properties with 28 percent, but still ahead of office properties with 20 percent.

bn. EUR
retail transaction volume

Transaction Volume Retail (in bn. €)

Transaction Volume by Type of Building

Retail segment with largest portfolio and single transaction in the overall market

The retail segment accounted for the two largest transactions  recorded in the commercial real estate market during the year. These include the acquisition of x+bricks’ local supplier portfolio by the Canadian investment manager Slate for around EUR 1 billion and the sale of shares in the Berlin luxury department store KaDeWe to the Thai investor Central. In the fourth quarter, on the other hand, there were only two transactions that are likely to have exceeded the EUR 100 million mark. These include the existing portfolio of the retail investor GRR (52 local supplier properties), which was transferred to Garbe in the course of the company takeover.

Food-anchored retail warehouses and retail parks remain dominate sub-segment

Transaction activity in retail real estate remains focused on a few sub-areas, which makes it very susceptible to fluctuations.

For the time being, the small-volume retail park segment with local suppliers represents calculable investment needs with crisis- and online-resilient sales and thus fits into the current investment strategy of many investors.

Mostly long-term and indexed leases represent predictable cash flows for core investors, even if significantly less capital is placed than 48 months ago. The food retail sector is also being strengthened by the trend towards supply close to home and place of work, driven by the home office, in expanding its close-knit network of locations. According to the EHI’s dealer survey, food products are once again one of the most expansive sectors.

Specialist markets and retail parks continue to lead all retail property types traded with a volume share of 55 per cent, of which 89 per cent is attributable to the food-anchored retail park segment alone. High-street properties, whose dominant market share in the first half of the year was mainly characterised by large-volume acquisitions in the department store segment, are currently in second place with a volume share of 33 per cent, followed by shopping centres in third place with 11 per cent. Around 44 percent of the transaction volume is accounted for by portfolios, the majority by individual deals.

Pricing not yet complete, yields continue to rise

Taking into account the continuing high interest and financing costs, the high prices of the past are no longer being paid in the retail segment either. Currently, the gross prime initial yields for local supply properties range between 5.60 and 6.25 percent.

gross prime yield for local supply

In response to the sluggish market activity, we are observing that portfolios that have been on the market for a longer period of time are being divided into smaller sub-portfolios or offered individually. In addition, we see value-add investors who focus on the restructuring of properties with short remaining maturity in good locations.

In this respect, inner-city commercial buildings and shopping centers in high-frequency locations currently offer good entry points for repositioning. The character of a purely retail property is broken up and replaced by mixed use. With the insolvency of major project developers such as Centrum or the Signa Group, products in the absolute top locations of the shopping metropolises will enter the market from this year onwards. Despite the generally high level of interest from potential buyers, we expect significant price corrections as a prerequisite for transactions that actually take place. Locations and centers that are not very sustainable will remain untradable for the time being.

Outlook: Market revival in 2024 with transaction volume well below EUR 10 billion

We see the weak quarter-end of the year as a temporary interruption in the gradual recovery process that is beginning in the investment market as a whole. Moderate economic growth, which will also support private consumption, as well as the increased predictability of the interest rate and financing environment will have a positive effect.

At the same time, the persistently high borrowing costs will increase the selling pressure on portfolio holders. In mid-December, for example, the specialist market investor Deutsche Konsum Reit announced real estate sales due to maturing bonds. In addition, there are the projects affected by insolvencies, which will gradually enter the market with their large volumes. Overall, we expect an increase in transaction volume for 2024, although this will still be well below the long-term volume of EUR 10 billion.

Prime Yield High Street (in %)

4.4Residential investment market bottomed out in 2023 – positive outlook for 2024

The full year 2023 was more subdued than expected in the institutional residential investment segment with a transaction volume of EUR 8.8 billion. After a weak third quarter, however, the noticeable revival in the fourth quarter (strongest quarter with EUR 2.9 billion) points to a gradual pick-up in market activity. Net income for the year was 39 percent lower than in the previous year (EUR 14.4 billion) and missed the ten-year average by 57 percent. At EUR 5.4 billion, portfolio transactions accounted for around 61 percent of investment revenue (previous year: 45 percent). In particular, the portfolios sales of VONOVIA SE to Apollo and CBRE Investment Management had a significant impact on the market. Of the total transaction volume, 41 per cent or EUR 3.7 billion was accounted for by the A-cities (prior-year period: 42 per cent), with a strong concentration on Berlin (around EUR 2.0 billion) and Munich (around EUR 800 million).

bn. EUR
residential transaction volume

The increased market activity in the fourth quarter shows that the price expectations of buyers and sellers have continued to converge and thus more transactions are crossing the finish line again.

We also see a convergence of price expectations in initial yields, with a stable level of prime yield in the fourth quarter of 3.85 per cent for existing properties in A-cities and 4.50 per cent in other locations.

gross prime yield for existing properties in A-cities

Investor focus on existing properties – projects and forward deals currently with little relevance

On the product side, demand continues to be directed towards existing properties, while there is little transaction activity in forward deals and new construction projects. The yield for the latter was stable in the final quarter of the year at 3.80 percent in A-cities and 4.30 percent in other locations. In 2024, buyer interest is also expected to be directed towards distressed projects, insolvencies and new construction projects that are in the process of being halted, so that increased investment activity seems possible in the course of 2024 if interest rates fall.

The micro-living segment continued to be subdued at the end of 2023. The discussion that arose in the middle of the year about potential rent regulations for furnished apartments increased uncertainty on the investor side, despite good framework conditions and increased occupancy rates. At the end of the year, this resulted in a further slight increase in the prime yield by 15 basis points to currently 4.15 percent in the A-cities.

High rental momentum of previous years intensified again in 2023

The strong rental growth of recent years accelerated again in 2023. In the A-cities, asking rents rose  by around 8 per cent in the existing segment and by around 9 per cent in the new-build segment. In the existing segment, rents in all A-cities at the end of 2023 were higher than at the end of the previous year, with Berlin showing the largest increase of almost 13 percent. In the new-build segment, the largest increase of 11 percent was observed in Frankfurt. However, rent growth is not a big-city phenomenon – if you look at Germany as a whole, the new rental rents for existing apartments rose by 5 percent, while rents for new buildings rose by 7 percent. Due to the expected massive decline in new residential construction and the resulting shortage of supply, rents are expected to rise significantly in all segments in 2024 as well.

growth in asking rents for existing properties in A-cities

Outlook: Basis for a market recovery in 2024 after price correction – rents continue on an upward trend

A sustained increase in demand for housing combined with a massive decline in new residential construction will mean that the housing market will be tighter in 2024 than it has been for decades.

Moreover, the political stimulus from the 14-point plan for more housing construction will only have an effect in the medium term. Although supply in the rental segment has now stabilised at a historically low level, no trend reversal is expected here due to the expected slump in new construction. The high demand for housing with too little supply is the basis for further rent increases. For 2024, we expect growth rates of at least 3 to 4 percent on average in A-cities.

Overall, investor interest in residential real estate remains high. With financing conditions expected to stabilize in the first half of the year and financing costs to fall slightly in the second half of the year, we expect higher investment activity over the course of the year.

Young ESG-compliant portfolio properties will once again be the focus of investors. On the buyer side, both institutional capital and equity-rich players such as family offices will provide significant demand impulses. On the sell-side, project developers, distressed sellers (insolvencies) as well as institutional investors and portfolio holders in particular will be more active than in 2023 due to liquidity pressure.

The full-year result will depend in particular on how the sales and portfolio streamlining processes of large portfolio holders develop over the course of the year and whether the Projects and Forward Deals segments pick up. Against this backdrop, a full-year result of more than EUR 10 billion is possible in an improved overall environment for residential real estate.

4.5B&C: Investments in office and commercial buildings in small and medium-sized towns almost at the level of the top 7

In 2023, around EUR 2.6 billion were invested in office and commercial buildings outside the top 7, a significant decline of 62 percent compared to the previous year. In the top 7, the decline in transaction volume was 84 percent. The number of transactions in B, C and D cities has fallen by more than half compared to 2022. Portfolio transactions accounted for only a very small share of less than 10 percent of the investment volume. Furthermore, the absence of international investors, who are traditionally represented in B & C cities, is not as strong as in the top 7 anyway. Only 11 percent of the investment volume was accounted for by investors based outside Germany. In recent years, their market share has regularly been between 20 and 35 percent.

There is no doubt that we can look back on an investment year that was marked by a high degree of uncertainty, numerous crises and a search for guidance in price discovery. The reluctance on the part of investors in view of the discussions about the future of the office as well as the fundamentally changed framework conditions in the financing environment are also evident outside the top 7.

bn. EUR
transaction volume in office and commercial buildings outside the top 7

Notably, the gap between the top 7 and B, C, and D cities has historically never been as small as it is in 2023. In the top 7, just over EUR 500 million more were invested in office and commercial buildings than outside.

Normally, volumes in the top 7 are at least 3 times higher than in B, C and D cities.

Pricing advanced, but not over yet

Analogous to the top 7 cities, prime yields in B&C cities have continued to move upwards. In the unweighted average of the 14 B cities examined, the prime yield for first-class office and commercial buildings in central locations was 5.20 percent at the end of 2023 (+60 basis points compared to the previous year), the first time since 2017 that it was below 20 times the annual net rent. In C-cities, very good office and commercial buildings were available for an average of just over 17 times or around 5.85 percent (+80 basis points compared to 2022) prime yields.

In view of the low number of transactions, especially for premium properties, it is difficult to make statements about pricing.

gross prime yield in B-cities

We expect to have seen the strongest increase in yields outside of the top 7 as well. However, we believe that the adaptation process is not yet complete.

 In the medium term, we expect a further slight increase in prime yields in central locations of B cities to around 5.35 per cent and in C cities to around 6.00 per cent. In recent months, the 5- and 10-year swap rates relevant to real estate financing have fallen sharply. However, they will be at a higher level this year than they were in mid to late 2021, so investors who rely on debt capital will no longer be able to pay the prices they did 24 months ago. However, from the middle of the current year and depending on further interest rate developments, prime yields could fall again somewhat.

Transaction volume office-retail mix buildings outside the Top 7 markets and in Tier 2&3 cities (in bn. €)

Transaction volume by region

Outlook: Stable rental markets offer attractive conditions after pricing

Especially in the last two months of 2023, we were able to observe the first small signs of a market recovery. Investor interest in office and commercial buildings outside the top 7 has increased again in view of the price adjustments that have already taken place and the stable user markets. Basically, the latter are characterized by a healthy ratio of demand and supply in most cities. Although the number of completions has risen recently, it is coming from a low level and at the same time with predominantly low vacancy rates. Furthermore, the topic of working from home is less pronounced outside the top 7 with the mostly medium-sized tenant landscape than in the top 7 with numerous large companies.

Prime Yield Office (in %)