One year later

Text: Matti Schenk

A year has passed since the outbreak of the first wave of the pandemic and the beginning of the first lockdown in Germany. The SARS-CoV-2 virus has left its mark on the German real estate investment market. The transaction volume over the last twelve months totalled around €64.6bn (see Graph below), which is almost 40% lower than in the previous twelve months.

In March 2021, the transaction volume in the commercial and residential property investment market totalled around €6.3bn. Consequently, commercial and residential property changed hands for a total of approximately €15bn during the first quarter of the year, representing a decrease of 49% compared with the opening quarter of last year, which was, however, by far the strongest first quarter of all time. When looking at the opening quarters over the last five years, this year’s volume is 17% below the average

The start to the 2021 real estate year has been generally characterised by a cautious attitude from many owners. This is evident from a glance at the number of commercial property transactions, for example. Fewer than 440 individual and portfolio transactions were signed in the first quarter of 2021, which was roughly equal to the transaction figures for the second and third quarters of 2020. The number of transactions over the last twelve months (approx. 1,800 deals), was approximately in line with the figures from 2013 and 2014 (see Graph below). In anticipation of pandemic restrictions being relaxed, many owners are preparing to address the market soon, leading us to expect more supply and significantly higher transaction activity in the second half of the year.

On the demand side, risk-averse investors continue to dominate as they seek to reallocate an increasing volume of capital from maturing government bonds with relatively high coupons. Numerous existing or newly launched value-add and core-plus vehicles also have high capital commitments and are seeking product. Hence, although the supply will grow over the course of the year, the surplus demand in the investment market is likely to persist. Prime yields in sectors in particularly high demand, such as residential, logistics, care homes and food retail, as well as core office properties (see Graph below) are, therefore, likely to harden further.

Since the beginning of the pandemic, it has been apparent that investors are focusing even more intently on the stability of rental income. Where rental income is expected to be very stable, commercial property in locations outside of the top six cities will witness high investors demand. In addition, the current exceptional situation has brought long-term fundamentals into sharper focus for many market participants. With its decentralised structure, Germany offers a wide range of attractive locations outside of the major metropolises in this regard.

Further information, for example the ten largest transactions in March and all charts and raw data for download, can be found in the PDF.