The German real estate investment market generated a transaction volume of more than €111 bn in 2021, reflecting growth of 40% in a year-on-year comparison, according to research from advisor CBRE.
Vonovia’s takeover of Deutsche Wohnen worth billions in the fourth quarter not only resulted in Europe’s largest private housing company but also enabled Germany to secure second place again after the US as one of the world’s most important investment targets for real estate investment.
Back in the third quarter, Swedish Heimstaden acquired the housing portfolio of CBRE-advised property company Akeliusin the second largest real estate transaction of the year worth around €5 bn after the Deutsche Wohnen takeover. Even excluding these two takeovers, the 2021 investment volume settled at 5% above the previous record result from the 2019 pre-pandemic year when just under €84 nm was invested in German commercial and residential property.
’This is the first time that the German real estate investment market has exceeded the €100 bn mark, and that significantly,’ said Fabian Klein, head of Investment at CBRE Germany. ‘Despite this record result, the supply of available investment opportunities is still eclipsed by massive demand from domestic and international investors.’
’With pressure from strong demand, we saw net initial yields compress further across almost all asset classes,’ added Jan. Linsin, head of Research at CBRE Germany. At year-end 2021, the average prime yield for office properties in top markets came in at only 2.65%, 0.2 percentage points below the year-earlier figure. Yields also continue to the decline in the retail segment. While distinct yield compression of 1.2 percentage points was recorded for highly desirable food markets, yields for high street properties and shopping centers recently edged down as well. The drop in yields of 0.4 percentage points to currently three percent for booming logistics property, ultimately due to Covid-19, was also considerable.
As anticipated, core and core plus investments dominated the investment year 2021 with a share of around 72% (2020: 6%). Furthermore, some seven billion euros were channeled into certified properties. ‘ESG is set to play an even more important role in the eyes of investors in the future,’ Linsin predicted. Apart from this, a trend has emerged toward more forward deals (€18.5 bn) and prospective projects and land for development (transaction volume of more than €5 bn, thus similar to the previous year). ‘Investors are seeking to position themselves on the German property market in good time, especially as alternative investments in the current low interest rate environment, also going forward, lack appeal, and will continue to deliver negative returns in real terms, particularly given the rising inflation rates,’ Linsin explained.
Residential as the asset class with the highest transaction volume
At around €49 bn, residential property was the dominating asset class in 2021 (up 145%). In terms of portfolio allocation, this usage type plays a decisive role with long-term oriented investors thanks to its defensive nature, with relatively low rental losses, high occupancy rates, and surplus demand for housing space in densely populated, growing metropolitan regions.
Of the commercial properties, office real estate remained the most important asset class, outperforming the year-earlier figure by 11% with a transaction volume of more than €30 bn. ‘Despite the relocation of office work to the home due to the pandemic, investors still fully believe in this asset class,’ Klein said. ‘This is affirmed by the current recovery in the office leasing markets that have largely overcome the upheavals caused by the exogenous shock from the pandemic. Companies and employees are both increasingly coming to appreciate the advantages of a contemporary working environment that is conducive to communication and creativity and human centric.’