-       Investment volume* of €6.1 billion in the first quarter of 2024, down 16 percent year on year

-       Prime yields stabilizing

-       Increase in office, retail, logistics and hotel transaction volumes

-       Munich ahead of Berlin thanks to major deals

A volume just shy of €6.1 billion was invested in the German real estate investment market in the first three months of 2024. The still weak market environment caused the transaction volume to drop 16 percent compared with the year-earlier period. Portfolio transactions recorded a steeper decline (down 24 percent) than single asset transactions (down 13 percent). Thirteen transactions above the 100-million-euro mark were nevertheless brought over the line, thereby even exceeding the first quarter of 2023 by one deal more. The proportion of the value-add segment grew considerably, accounting for around one third of the transaction volume in the first quarter of 2024 compared with one fifth a year earlier. Fewer acquisitions were made in the core and core plus segment (54 percent equivalent to €3.3 billion), with investors focusing more strongly on core rather than on core plus product, which was not the case in the previous year. These are the conclusions drawn in a current analysis prepared by the global commercial real estate services company CBRE.

The ifo Business Climate index, for instance, proved to be somewhat more upbeat in all four sectors of the economy, including the construction industry. Similarly, the ZEW economic indicator also brightened again in March.

Retail takes the lead ahead of logistics and office

Retail properties, driven by the Fünf Höfe and Maximilianstraße 12-14 deals whose share amounted to almost half a billion, took center stage with €1.66 billion, equivalent to 27 percent in the transaction volume, followed by logistics real estate with €1.5 billion (24 percent) and office real estate with €1.3 billion (22 percent). These three established asset classes, along with the hotel sector, all recorded higher investment volumes than in the first quarter of 2023. Especially multifamily housing (upward of 50 units) and healthcare properties suffered marked declines, landing only in fourth place (residential) and seventh place (healthcare properties) after development sites and hotel properties.

Munich trumps Berlin on the back of major deals

At almost €2.9 billion, some 47 percent of the overall investment volume was accounted for by the Top 7 locations, which is one percentage point more than in the first quarter of 2023. Measured against the German market as a whole, the decline of 13 percent was marginally lower in a year-on-year comparison.

Munich, with an investment volume that soared by 72 percent to a good €1.2 billion compared with the year-earlier period, wrestled back the leading position from Berlin. This performance was attributable to the major transactions involving the Fünf Höfe and Maximilianstraße 12-14 that were both acquired by private investors.

Compared with the first quarter of 2023, Berlin saw its transaction volume plunge by 55 percent to €745 million. Next in line came Hamburg with €373 million (up 49 percent) and Düsseldorf with €349 million (up 10 percent). In Frankfurt and Cologne, the transaction volume dropped by around one third in each case to €132 million and €44 million respectively. No institutional transactions took place in Stuttgart in the first quarter.

Prime yields stable since year-end 2023

Net initial yields in the prime segment across all asset classes have remained stable since the final quarter of 2023. The prime yield of premium office properties in the top locations and high street properties in the seven investment centers averaged 5.01 percent and 4.84 percent respectively. Prime yield for state-of-the-art care homes remained at 4.30 percent. The average figure for multifamily housing in the Top 7 locations edged up by 0.05 percentage points to 3.39 percent compared with year-end 2023. “We are anticipating that yields will firm up and stabilize in the months ahead,” Klein says.

Private investors determine market activity

The strongest net buyers consisted of private investors and family offices whose acquisitions exceeded sales by around €870 million, followed by real estate companies (up €430 million) and the public sector (up €352 million). On the seller front, alongside developers who are sales oriented by dint of their profession, open-ended real estate and special funds in particular sold more properties than they bought.

International investors channeled just under €2.4 billion into the German real estate market, accounting for approximately 39 percent of the overall volume on a par with the year-earlier figure. In the industrial and logistics segment, players from Asia, North America and European countries outside Germany proved to be especially active in the context of portfolio deals.

Outlook for the remainder of the year

“Inflation continues to fall in Germany. Accordingly, the country’s inflation rate is likely to be around 2.2 percent in March 2024, marking the lowest level since April 2021. Although we do not expect the European Central Bank to cut interest rates at its upcoming meeting in April, the market is anticipating an initial move in this direction at its meeting next scheduled in June. The still cautious approach adopted by the European Central Bank confirms our opinion that interest rates will not be lowered before the summer. The European Central Bank is still concerned about persistently high inflation,” Linsin explains.

“Consequently, we anticipate activities that are rather more muted on the real estate investment market in the second quarter, although we are already seeing larger single asset transactions and portfolios in the marketing phase or being prepared for select introduction to the market. Fire sales will be increasingly on the cards as there are still players, properties and portfolios that cannot otherwise be refinanced. For the full year, we are expecting residential and commercial real estate to generate a transaction volume of at least €35 billion,” Klein says.

*In addition to the transaction volume, minority stakes of €137 million were registered. Financing transactions are not included.