Slight increase in activity in a turbulent environment

• In the twelve months from April 2024 to March 2025, German commercial and residential properties* changed hands for around €34.6bn. This represents an increase of 12% compared to the same period of the previous year (April 2023 to March 2024). The first quarter of 2025 accounted for around €6.9bn, which is roughly the same volume as the same quarter of the previous year (around €7.2bn).
  
  
• The number of ongoing and imminent sales processes has increased noticeably compared to the previous year - we therefore expect a slight increase in transaction activity overall in the coming months. However, the decisive factor will be how many of the properties for sale will find buyers. Office properties in particular are up for grabs for many owners, but investor interest in this segment remains limited. As a result, not every sales process is likely to result in a successful signing. At the same time, the recent rise in long-term interest rates is increasing the incentive to sell, particularly in the case of debt-financed properties - a factor that could lead to more transactions. Nevertheless, a significant increase in transaction volumes can only be expected if there is a major refinancing-driven wave of sales. Although this scenario is possible, we believe it is still quite unlikely.
  
  
• The extent of the liquidity requirements and selling pressure on the landlord side is also likely to be a decisive factor in the further development of initial yields. In the first three months of the current year, prime yields for all types of use remained unchanged and ranged between 3.6% for multi-family properties and 5.8% for shopping centres. Prime yields at least are likely to move only slightly going forward, although smaller swings in either direction appear realistic depending on the type of use. Beyond the prime segment, the several factors tend to favour further yield increases in our view: rising supply, higher long-term interest rates and foreseeable increases in construction costs make falling initial yields appear unrealistic, at least in those segments without strong rental growth prospects. As a result, the price gap between prime properties and the rest is likely to widen.
  
  
• The rising price difference between prime and secondary/tertiary properties makes project developments and their financing attractive, especially as the pipeline is increasingly running dry across all types of use. We are observing an increasing number of investors pursuing such investment approaches - from refurbishing to repositioning to conversion, all shades are included here. In particular, capital is available for the conversion of offices into hotels or serviced apartments, opening up a new path for some properties that no longer have a future in their previous function.
  
  
• Against the backdrop of the partly chaotic macro environment, the further development of the property investment market remains difficult to predict. However, with a new federal government and the investment spending packages that have already been agreed, this environment offers Germany the opportunity to reposition itself as the safe haven for investors that it was until a few years ago.
  
  * only transactions with at least 50 residential units