Text: Matthias Pink

Strong start, uncertain outlook

Properties in Germany changed hands for approximately €24bn during the first quarter of 2022. Commercial properties accounted for approximately €19.6bn of this while residential properties were responsible for around €4.4bn. This was the second strongest opening quarter for investment on record, with only the first quarter of 2020 producing a higher volume. The transaction volume in March totalled around €6.2bn (Table 1). The rolling transaction volume over the last twelve months stood at €120.9bn, remaining almost unchanged compared with the previous month.

The extremely high transaction volume is also a result of large company mergers and acquisitions in the commercial property market. There were four such transactions in the first quarter, by far the largest being the majority interest taken in Alstria by Brookfield. These transactions had a combined volume of almost €7bn or 35% of the entire commercial transaction volume. Office properties accounted for approx. 44% of the commercial volume in the first three months. Industrial and logistics property came in second with 23%.

There were no large company acquisitions in the residential investment market during the last three months. If such transactions are excluded, the quarterly volume was around 5% above the five-year average. In terms of risk profiles, investors covered a broad spectrum, with opportunistic investors being disproportionately active in the last three months. Long-term and risk-averse investors remained highly active in purchasing new residential property, which promises long-term and, ideally, inflation-linked income streams and value stability. At the same time, more opportunistic companies are increasingly pursuing manage-to-green strategies and are therefore purchasing existing properties for energy-efficient refurbishment and resale to investors with corresponding sustainability requirements.

In view of rising inflation, interest rate hikes and economic risks owing to the war in Ukraine, the list of stress factors for the German investment market appears longer than it has been for quite some time. The risk aversion among many investors may increase yet further, resulting in an even greater focus on core assets. This would increase the surplus demand in the core segment, which would likely ensure stable and potentially even moderately increasing prices. In contrast, the non-core segment, the shrinking risk premium on property compared with bonds, and particularly rising financing costs, could have a dampening effect on prices in the medium term. Overall, we expect Germany to remain one of the favoured safe havens for most investors. Nevertheless, the outlook has become more uncertain in recent weeks, which could curb investment activity in the coming months.

You can download all figures and the associated data here.