German real estate market: Continued low transaction volume

Despite an increase in real estate investment in the third quarter of 2023, the German real estate market saw an overall low transaction volume. Market conditions and price expectations from buyers and sellers remain challenging.

The volume of transactions decreased year-on-year

According to the current analysis of the global real estate service provider CBRE, the German real estate investment market reached a transaction volume of 20.97 billion euros in the first three quarters of 2023. In the third quarter, investments increased by 28 percent compared to the previous quarter, but were still 53 percent below the level in the third quarter of 2022. The 7 largest cities, especially Berlin and Munich, saw 41 percent of the transaction volume.

As CBRE’s press release shows, different price expectations are the main reason for the low volume of transactions. Price expectations of buyers and sellers rarely coincide, especially in the large segment. As a result of CBRE’s analysis, there are currently almost no large transactions involving institutional investors, especially in the office segment.

Residential properties dominate the market, while office transactions decline

According to CBRE’s analysis, residential properties with at least 50 housing units maintained their dominance on the German real estate investment market, representing 22 percent of the total volume. This was closely followed by industrial and logistics properties as well as retail properties, each accounting for 21 percent of the transaction volume. In the office segment, traditionally considered the strongest asset class in the commercial sector, the share of transactions fell to 20 percent.

Increases the number of smaller shops

Analyzing the first three quarters of 2023, CBRE analysts also observed a trend toward smaller deals. Large transactions above 100 million euros are falling in the German real estate investment market, with just 31 such deals over the past three quarters, compared to 98 in the same period last year. This is reflected in an overall lower number of trades and smaller transaction sizes compared to the five-year average.

Revenues are growing

Despite the low volume of transactions, investors can look forward to higher returns. In the third quarter of 2023, yields increased in almost all asset classes, especially office and commercial buildings. The prime office yield was 4.6 percent, up 0.5 percentage points from the previous quarter and almost 1.9 percentage points higher than at the turn of 2021/2022, according to CBRE. With increased funding costs and higher yields on alternative bond products in the capital market, CBRE analysts expect further correction in the high-volume sector as investors seek adequate risk premiums. According to CBRE’s analysis, there is still a need for an upward adjustment, especially for office properties due to hybrid work and the increasing importance of ESG criteria.

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