Record turnover amid the pandemic

Text: Matthias Pink

Properties in Germany changed hands for approximately €110.6bn in 2021. Commercial properties accounted for approximately €58.8bn of this while residential properties were responsible for around €51.8bn. This is the first time we have ever recorded an investment volume in excess of 100 billion euros in a calendar year. The fourth quarter alone witnessed investment of €50.3bn –the highest volume recorded in a quarter to date. A significant proportion of this was attributable to the majority interest taken in Deutsche Wohnen by Vonovia. Consequently, residential property produced the highest transaction volume of any sector for the first time. However, the residential investment market would have witnessed record volume even without this one-off transaction.

Investment in the commercial property market stabilised at a very high level in the second year of the COVID-19 pandemic. Furthermore, on the demand side at least, there is nothing standing in the way of a further increase in investment. Demand remains high in the core segment and we have witnessed rising interest in the riskier segments in recent times. Several sale processes in the non-core segment became drawn out last year or were even aborted because sale price expectations were not fulfilled. However, we consider it a matter of time before a viable price level is re-established and, therefore, expect higher transaction activity in the non-core segment in the year ahead.

The residential investment market, which was already in the ascendant prior to the pandemic, soared to new highs last year. Residential property is regarded by many investors as a bond substitute par excellence, which resulted in further massive capital flows into the market. Existing property accounted for 89% of capital invested last year, which is the highest proportion since 2015. At the same time, an unprecedented amount of capital (€5.6bn) was invested into development projects. On the whole, the fundamentals also remain advantageous for investors going forward. On a regional level, however, supply and demand parameters are increasingly drifting apart, requiring a more differentiated analysis.

2022 is likely to be substantially characterised by the effects of ESG regulations. It appears that ESG criteria can be fulfilled more easily with new build property, which is why we expect rising demand for new build. At the same time, there is increasing pressure to refurbish existing property. Extensive refurbishment of existing property is likely to be a challenge for many landlords. This may result in additional mergers to combine resources. We also expect to see an increasing number of disposals of non-refurbished properties as investors are adjusting their portfolios. All of this is likely to fuel transaction activity. Combined with the general strong demand in the capital markets, we expect above-average volume once again in 2022. Investment in commercial property is likely to reach approximately €65bn and we expect the transaction volume for residential property to exceed €20bn.

You can download all figures and the associated data here.