Despite an increase in real estate investments in the third quarter of 2023, the German real estate investment market recorded a low transaction volume overall. Market conditions and price expectations from buyers and sellers remain challenging.
Transaction volume decreased year-on-year
According to a current analysis by 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 top 7 cities, particularly Berlin and Munich, recorded 41 percent of the transaction volume.
As CBRE’s press release shows, different price expectations are a key reason for the low transaction volume. The price expectations of buyers and sellers rarely match, especially in the large segment. The result of the CBRE analysis is that there are currently hardly any major transactions involving institutional investors, particularly in the office segment.
Residential properties dominate the market while office transactions are declining
Residential properties with at least 50 residential units maintained their predominance in the German real estate investment market, accounting for 22 percent of the total volume, according to the CBRE analysis. Industrial and logistics properties as well as retail properties followed closely behind, each accounting for 21 percent of the transaction volume. In the office segment, which is traditionally considered the strongest asset class in the commercial sector, the share of transactions fell to 20 percent.
Increases the number of smaller deals
When analyzing the first three quarters of 2023, CBRE analysts also observed a trend towards smaller deals. Large transactions over €100 million are declining in the German real estate investment market, with just 31 such deals in the last three quarters, compared to 98 in the same period last year. This is reflected in an overall lower number of deals and smaller transaction sizes compared to the five-year average.
Yields rise
Despite a low transaction volume, investors can look forward to higher returns. In the third quarter of 2023, returns rose in almost all asset classes, especially for office and commercial buildings. The prime yield for office properties was 4.6 percent, 0.5 percentage points higher than in the previous quarter and almost 1.9 percentage points higher than at the turn of the year 2021/2022, as CBRE reports. Given increased financing costs and higher returns for alternative bond products on the capital market, CBRE analysts expect a further correction in the large-volume sector as investors look for adequate risk premiums. According to the CBRE analysis, there is still a need for upward adjustment, particularly in office properties due to hybrid work and the growing importance of ESG criteria.
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