Slower transaction momentum on Germany’s office real estate investment market in the first half of 2023

  • Investment volume tumbles 79 percent to €2.8 billion year on year
  • Average prime yield across the Top 7 markets climbs by 1.27 percentage points to 4.07 percent
  • Portfolio share down 27 percentage points to seven percent
  • Top 7 locations account for 71 percent of investments, reflecting a decline of six percentage points compared with the year-earlier period

Germany’s office real estate market registered a transaction volume of €2.8 billion in the half of 2023. Office properties therefore accounted for a share of 28 percent in the commercial real estate investment market and 22 percent in the entire real estate investment market, hot on the heels of multifamily housing transactions (upward of 50 units) that took a share of 24 percent. Compared with the first half of 2022, the transaction volume on the office real estate investment market plunged 79 percent. Along with the challenges for the real estate investment market posed by the interest rate turnaround and occupier-related changes as a consequence of hybrid working concepts, this clear discrepancy was also explained by Brookfield’s takeover of alstria office-REIT AG in the first quarter of 2022 that drove the transaction volume to record highs. A deal of this stature was lacking in the first half of 2023. Only seven large-scale deals above the 100-million-euro threshold were completed in the last six months, as opposed to the year-earlier period which saw 22 deals brought over the line. Consequently, the average deal size in the office property segment virtually halved to currently €31 million. These are the results of a current analysis prepared by the global commercial real estate services company CBRE.

Fabian Klein, Head of Investment

Against the backdrop of the persistent uncertainty regarding the price trend and new financing conditions, many investors have adopted a very cautious stance. Opportunities arise for high net worth players who remain virtually unaffected by the interest rate hikes and are able to complete transactions without borrowing. However, these investors are currently also extremely cautious as they are naturally factoring in other market players. Generally speaking, potential buyers are counting on prices falling, which will mean the market will pick up momentum again when pricing has stabilized at a new, discernibly lower level.

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

Fixed-income investments linked to higher returns are currently preferred by professional investors, both for diversification purposes and for adjusting their expectations of returns. Similar to other real estate asset classes, this market environment will decidedly detract from the appeal office real estate for the time being. Although office properties are basically still interesting for many institutional investors, they nevertheless expect a risk premium above the benchmark return.

Dr. Jan Linsin, Head of Research

Yields continue their uptrend

Accordingly, the yields for office properties have already notably increased. As an average across the Top 7, office markets’ prime yields have climbed 1.27 percentage points to 4.07 percent compared with the end of the second quarter of 2022. Munich reported the lowest prime yield (3.9 percent), followed by Berlin (four percent), Hamburg (4.05 percent), Frankfurt am Main (4.1 percent), then Düsseldorf, Cologne and Stuttgart (all 4.15 percent). “The need for higher yields has not overcome investor risk aversion, however,” Klein adds. “Similar to the occupier markets, investor demand is currently focusing above all on contemporary office properties in central locations and thus on sustainable rental growth.” At 72 percent of the transaction volume, slightly more was invested in core and core plus products than in the year-earlier period (68 percent). By contrast, the proportion of value-add and especially opportunistic investments declined.

Berlin holds its position as the largest office investment market

As before, the Top 7 are clearly targeted by investors despite the current share of 71 percent dropping marginally below the first six months of 2022 (78 percent). Berlin, München and Stuttgart recorded a larger share than in the previous year’s period, with Berlin capturing 24 percent, thereby holding its leading position by quite a long way.

International investors opting for caution

Only one fifth of the volume was attributable to international investors who in the first half of 2022 were still responsible for more than half of the investment volume. At the present point in time, virtually no Anglo-American investors are active on the German market as they are used to significantly higher yields in their home markets and have also priced this in accordingly with regard to Germany. Many value-add and opportunistic investors are gearing up to become more active on the German market. Their purchase price expectations are, however, far removed from the prices that sellers are currently still commanding. “Although there are definitely “bargain hunters” in the markets, we are still not seeing any forced selling yet. This also applies to developers though the difficult framework conditions may well trigger a slight market consolidation in this case,” was Klein’s analysis.

Outlook for the full-year 2023

“We will likely have somewhat of a wait until interest rates really come down again, at which point the market will generally see liquidity coming back again. At the moment, we are waiting for the ECB to implement another rate hike of a quarter of a percentage point at the end of July. Further interest rate measures are feasible given the persistently high inflation rates – there are also signs from the ECB that it will continue to pursue a restrictive monetary policy. The consequences for Germany’s office real estate investment market consist of higher lending rates and ongoing intense pressure on real estate yields. Moreover, we anticipate that, against the backdrop of increasingly rigorous regulations tightening capital adequacy requirements, banks will significantly scale back their real estate financing exposure. Alternative lenders are more expensive in terms of financing conditions and will not be able to close the gap to conventional real estate financing,” Klein predicts.

“As soon as interest rate developments and financing conditions stabilize, we will see the office real estate investment market pick up momentum again. We are already observing a larger number of properties and portfolios being prepared for marketing,” Klein says.

“ESG and asset management are becoming increasingly important for owners as this will lower potential leasing risks while tapping into upside potential from rents and net income. This scenario is an important foundation underpinning preparations for the next real estate cycle. Despite the current cyclical dip, the fundamentals on Germany’s leasing market are extremely robust, and the trend, both of occupiers and investors, is going in the direction of premium well-situated properties with good infrastructure in desirable city center locations,” Linsin observes.


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.


Fabian KleinDr. Jan Linsin
Head of Investment GermanyHead of Research Germany
+49 (0)69 17 00 77 671+49 (0)69 17 00 77 404