Investment volumes for German residential properties (transactions for at least 50 apartments) reached €755m during the first quarter of 2024, according to Savills. The prime yield on apartment buildings stood at 3.6% at the end of the first quarter of 2024 says the international real estate advisor, remaining stable for the second consecutive quarter.

According to Savills, demand has been met with very low supply since many portfolio holders are under no pressure to sell thanks to increased rental income and predominantly conservative financing. Furthermore, in view of the further increase in scarcity of rental apartments, many owners are anticipating a recovery in capital values and are holding off from selling for the time being.

Karsten Nemecek, Managing Director of Corporate Finance – Valuation for Savills Germany, says: “The residential investment market is still bottoming out but there are some signs of revitalisation since summer 2023. A decisive factor is the number of sales processes in preparation or ongoing, not least those from listed residential property companies. This is likely to create more supply over the course of the year. In terms of demand, MIPIM confirmed that the residential sector is top of the target list for many institutional investors and, as the largest residential market in Europe, Germany is regularly in the spotlight.”

Matti Schenk, Associate Director of Research for Savills Germany says: “The thirty largest German university cities have an average vacancy rate of just 1.1%, hence, there is significant additional and pent-up demand in many locations in terms of new-build housing. Since completion figures nationwide are trending towards only 150,000 new apartments per year, demand will continue to outstrip supply. The likely consequences of this are a further decline in vacancy rates and rising market rents.”

Marco Högl, Director and Head of Residential Capital Markets for Savills Germany, says: “Regional players and those familiar with the market are frequently appearing on the purchaser side. However, it is in the core market that we are currently witnessing many transaction processes running smoothly. These normally involve newer properties under twenty years old, which are brought to the market following the end of their owners’ planned holding periods. We are observing some stronger bidding processes on such product, with both family offices and institutional investors appearing as interested parties. Purchase price multipliers on such high-value properties have been ranging between 22.5 and 25 in recent months. In view of rising target rents, the bottom for capital values on such properties is already likely to be behind us.”

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Market in Minutes: Residential Market Germany