German real estate investment market: Transaction volume still hugging low levels despite much stronger momentum in the third quarter

  • Transaction volume* of just under €21 billion – 60 percent below the previous year’s level
  • Residential as the strongest asset class on the investment market, followed by logistics and retail
  • Yields are expected to continue their uptrend

The German real estate investment market delivered a transaction volume* of €20.97 billion in the first three quarters of 2023. In the third quarter alone, investments of €7.8 billion flowed into German real estate, reflecting an increase of 28 percent compared with the second quarter of 2023 but marking a decline of 53 percent versus the third quarter of 2022. Of the transaction volume, 41 percent has so far been allocated this year to the Top 7 cities, with Berlin and Munich leading the way with €4 billion and €1.6 billion respectively. These are the conclusions drawn in a current analysis prepared by the global commercial real estate services company CBRE.

Fabian Klein, Head of Investment

Buyer and seller price expectations converging are still a rarity, above all in the large-scale segment. Particularly in the office segment virtually no large-scale transactions involving institutional investors are currently taking place. We are seeing repricing continuing to make headway in the market, however, and that, prompted by the increase in financing costs and also by the significantly higher returns on alternative investment products in the capital market, players are moving closer to a new equilibrium – that said, we definitely anticipate yields rising further.

Fabian Klein, Head of Investment
Dr. Jan Linsin, Head of Research

At the present point in time, high net worth investors such as family offices that do not rely on borrowing, or only to minor extent, and whose investment focus rests on smaller lot sizes are making their moves.

Dr. Jan Linsin, Head of Research

Open-ended real estate funds and special funds in particular were the strongest buyer groups investing in commercial properties, first and foremost in logistics and retail properties over the past nine months. International investors with a share of 39 percent in the transaction volume originated principally from European countries outside Germany and North America.

Yields set to rise further

Yields continued their uptrend across almost all asset classes during the third quarter of 2023, particularly in the case of office and commercial buildings. As an average of the Top 7 locations, office prime yield was running at 4.6 percent at the end of the quarter, up 0.5 percentage points quarter on quarter and a good 1.9 percentage points above the historical lowest point at the turn of the year 2021/2022. “With the bank margin and risk premium on top, it comes as no surprise that pricing needs further correction, particularly in the large-volume segment with institutional investors both in Germany and abroad participating,” Linsin comments. Moreover, financing interest, measured in reference to the 5-year EURO Swap Rate for instance, currently stands at 3.4 percent and the risk-free rate in the form of the 10-year Bund at more than three percent at the last count. The benchmark yield alone has gained two percentage points in the last 18 months. Investors have priced this yield increase into their potential real estate allocation and consequently require an adequate risk premium to mitigate the risks of investing in tangible assets. As Klein adds: “What is more, banks are generally less willing to lend. Against the backdrop of interest rates trending down, this is likely to be a topic that will engage the attention of investors for years to come – especially when investing in office properties.”

“We are observing structural change specifically with office real estate due to the fact that occupiers’ are focusing increasingly on the best locations and properties. This trend is mainly driven by hybrid working and the growing importance of ESG criteria. These are the reasons why the current yields of office properties require significant upward adjustment,” Klein says.

Residential still delivering the largest transaction volume

Multi-family housing (upward of 50 units) took the lion’s share of 22 percent in the overall volume and as the strongest asset class, followed closely by industrial and logistics real estate as well as retail properties (each with 21 percent), with large-scale portfolio sales respectively contributing to the strong result. In the office segment, traditionally the strongest asset class in the commercial sector, the lack of large (portfolio) transactions with institutional investors resulted in more of a lower proportion of 20 percent in the transaction volume. In the case of operator-run properties (hotels and healthcare real estate), investors were cautious, particularly with larger transactions despite healthy fundamentals in both sectors, which is attributable to perceived structural challenges affecting the operators.

Trend toward smaller deals

Large-scale transactions above the €100 million mark are still a rarity; only 31 deals in this category took place in the last three quarters, compared with the year earlier period when this figure still stood at 98. Generally speaking, the number of deals brought over the line and the average lot size declined significantly over the course of the current year when measured against the five-year average on the German market. Whereas the buying price in 2018-2022 averaged just under €38 million and the deals numbered 1,475, this is now just shy of year €27 million and a good 800 transactions. The large-scale segment in particular has seen a sharp downturn, though mid-range lot sizes suffered considerably less of a decline.

Outlook for the full year 2023

“With us not expecting a year-end rally, we anticipate a transaction volume of €25 billion for the full year 2023. We currently estimate €32.5 billion for 2024,” Klein says. “The current market environment nevertheless harbors a number of investment opportunities, with larger transactions also at the preparatory stage, which will subsequently provide evidence of a new market equilibrium in the months ahead, albeit at a significantly lower price level. Furthermore, refinancing is imminent for numerous real estate loans, with the result that insolvencies, distressed positions, and fire sales will create ample investment opportunities. As in previous crises, this will attract the attention above all of opportunistic investors here in Germany and abroad, especially as these investors are convinced by the resilient fundamentals of Germany’s economy and its real estate industry.”

In the current year, Germany’s gross domestic product is expected to contract by 0.5 percent. In 2024, there are signs of a modest increase of 0.2 percent, with stronger economic growth of 1.9 percent being forecast for 2025. “It’s less the mild recession and much more the sharp increase in financing costs and yields for alternative investments that are currently dragging on the strong momentum customary on the German real estate investment market. Nonetheless, the possibility is opening up, particularly in the current market phase, for some investors to position themselves on the German real estate market and to benefit from the future upswing. However, an asset-specific risk/return analysis is more important than ever, especially as the discussion about repricing and the future positioning of property with a view to ESG issues is bound to intensify,” Klein explains.

“Inflation is showing signs of easing somewhat – owing to the economic downturn induced by monetary policy in the coming months. The core inflation rate is nevertheless likely to remain at a high level so that further interest rate hikes by the ECB cannot yet be entirely excluded. For the moment, the economy and the real estate sector need to adapt to the new, higher interest rate regime and adjust their business models and investment strategies,” Linsin adds.



Fabian KleinDr. Jan Linsin
Head of Investment GermanyHead of Research Germany
+49 (0)69 170077-55+49 (0)69 170077-404

About CBRE

CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has more than 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

CBRE Germany has been represented by its head office in Frankfurt am Main since 1973; there are further branch offices in Berlin, Düsseldorf, Essen, Hamburg, Cologne, Munich and Stuttgart.