The change on the real estate market raises many question marks for the established property sectors. In the retail and office sectors in particular, there are growing uncertainties surrounding demand for space going forward both in terms of quality and quantity. The same is true of hotels. These increased risks are meeting with a predominantly risk-averse pool of purchasers. What, then, should investors do? Most are responding to this question with a stronger focus on those properties for which high demand is expected from occupiers for the foreseeable future. This may be because the uses are impossible or very difficult to substitute or because the properties serve a demand group witnessing structural growth. Hence, these promise investors long-term, predictable and relatively stable income. Furthermore, there are good prospects that an attractive resale price will be achievable at the end of the planned holding period. Some of these uses have already been long sought-after and have been in even greater demand since the outbreak of the pandemic while other uses are appearing on the agendas of many investors for the first time. These are the rising stars of the German real estate market.

Rising star properties have witnessed prime yield compression since the second quarter of 2020 and further capital growth is on the horizon. This is particularly impressive in the case of food retail properties and nursing homes.

Uses that have been long sought-after include residential buildings (see also: Will demand for residential property increasing and, if so, why?) and care properties such as nursing homes. Both uses are impossible or very difficult to substitute. Moreover, the projections for the number of households and the number of people in need of care suggest that demand will continue to rise. The fact that these uses are not only almost indispensable but also even more sought-after than ever has attracted even more investors to these segments. The same is true of care properties such as kindergartens or medical centres.

Within the world of retail, the resilience of food retail properties is being rewarded. Brick-and-mortar food retail witnessed revenue growth even during the pandemic. It is little wonder, therefore, that supermarkets and discounters represent the new core within the retail property sector.

On the whole, however, all retail spending can also be handled online. All online retail must be processed in logistics warehouses. Hence, e-commerce is driving demand for logistics space massively and generating rising transaction volumes in the investment market (see also: Where is the logistics property market heading?).

However, not only does the e-commerce sector require a large amount of logistics properties. The bits and bytes of online retailers, as well as social networks and streaming service, etc. also require space, namely data centres. Demand for space will rise significantly over the coming years, which will also increasingly bring such specialist properties onto the radar of more risk-averse investors.

Finally, there are other uses that have only recently begun to appear on the shopping lists of more and more investors. These include laboratory space for the life sciences sector, which is now among the alternative top picks in the European real estate market. This sector is not only in the spotlight owing to vaccine development but is also likely to witness overall growth. However, the reason for the rising demand from real estate investors may well be more straightforward. Whereas we can also perform our office duties from a desk at home, laboratory space is hardly likely to find its way into our residences for the time being and, accordingly, science parks will be in demand.

Conversely, the ascent of the rising stars does not mean that uses such as offices will be cast aside. However, investor demand in these sectors will be concentrated even more strongly on core properties, resulting in a narrower focus. In the case of most rising stars, on the other hand, investment criteria are expected to soften further since competition among bidders will become more intensive and the fundamentals in many locations remain attractive.