Germany Real Estate Market View

Ursula-Beate Neisser • 20/10/2021

COVID-19 Pandemic
Since 11 October, most of the German population no longer receive COVID-19 tests free of charge. In contrast, vaccination against COVID-19 remains free. Almost 70% of the population is currently fully vaccinated. Meanwhile, everyday office life continues to be affected by the pandemic. Most companies allow an occupancy rate of about 50 % in their office spaces. In many places, agreements are struck with employees on the number of days’ attendance per week. In recent months, there has also been more movement in the demand for office space as companies seek ways to implement post-pandemic office concepts. Wüstenrot & Württembergische (W&W), for example, recently announced that in future only 4,000 workplaces will be required for 6,000 employees as a result of changes in desk-sharing quotas.

New Federal Government
In the elections to the German Bundestag on 26 September, the SPD became the strongest party ahead of the CDU/CS. But in all likelihood, there will be no resumption of the ‘grand coalition’ of recent governments. Negotiations between the SPD, the Greens and the FDP to establish a possible tripartite will begin this week. Despite partly differing policy ideas, an agreement is considered likely. Among other things, it must be clarified which measures are to be taken to comply with agreed climate targets and how these are to be financed.

Climate neutrality in the building sector
Two recent studies have examined the measures which would be required for Germany to be climate neutral by 2045. The ‘Ariadne Project’ (funded by the BMBF) concludes that the annual renovation rate of extant buildings would have to increase to as much as 2% by 2030. In addition, about 5 million heat pumps would have to be installed and about 1.6 million buildings would have to be newly connected to district heating networks. The German Energy Agency's lead study ‘Aufbruch Klimaneutralität’ has calculated that CO2 emissions in the building sector would have to fall from 120 million tonnes per year (2018) to 67 million tonnes per year by 2030, which could be achieved via energy-efficient renovations and the use of climate-neutral fuels. It also advocates the designation of more neighbourhoods as climate protection priority areas due to the shared use of energy infrastructure. Regulations as well as cumbersome approval procedures are still proving to be a hurdle, but the real estate industry has already turned its attention to this topic.

Smart Cities - Frankfurt only in midfield
The industry association Bitkom has published this year's study on the degree of digitalisation of 81 German cities with more than 100,000 inhabitants. Criteria such as administration, IT and communication, energy and environment as well as mobility and society were considered. Five cities that are among the top office market locations also appear in the top 10 ranking - with Hamburg in first place, Cologne in second place, Munich in fourth place, Stuttgart in eighth place and Berlin in ninth place. Frankfurt, on the other hand, is only in 47th place, with a particularly weak rating in the area of energy and the environment.


23 September

COVID-19 pandemic - The federal states’ anti-pandemic regulations remain in place. The 7-day incidence (number of new infections per 100,000 inhabitants in the last 7 days) has been supplemented as an indicator by, among other things, the hospitalisation incidence (number of COVID-19 patients admitted to hospital in the last 7 days per 100,000 inhabitants). Masks are still mandatory in retail and public transport. Wherever the ‘2G rule’ (only fully vaccinated or recovered persons permitted) is applied, there is further loosening.

Frankfurt commercial tower - The planned ‘Porsche Design Tower’ in the west of Frankfurt's Europaviertel is now to accommodate around 45,000 sq m of office space instead of 260 apartments. In addition, the height of the tower will be reduced to 80 metres. The investor apparently considers there is more potential in office letting than the luxury segment of Frankfurt's residential market. This is because the newly built office towers in the city centre are almost completely let, and the demand for modern space remains unbroken. 

Takeover bid - Vonovia continues to work on strengthening its position as Germany's largest housing group via a merger with Deutsche Wohnen and has now removed the minimum acceptance threshold from its takeover bid - while nonetheless pursuing the goal of increasing its stake in Deutsche Wohnen to over 50 percent. The acceptance period of the offer for shareholders ends on 4 October 2021.

Berlin housing market - It has also emerged that the state of Berlin is to buy around 14,700 flats from Vonovia via its state-owned housing companies (cost: around €2.4 billion). The city's goal is to increase its municipal housing stock to 400,000 apartments by 2025. In addition, the city’s senate has decided to lobby for a nationwide regulation enabling the individual states to regulate rents via caps. 

08 September

Retail - Despite rising vaccination rates, only cautious optimism for H2 prevails in the German retail sector. In July 2021, the Federal Statistical Office recorded a real decline in sales of 5.1% compared to the previous month. The rising inflation rate is also contributing to uncertainty, reaching its highest level in 20 years at 3.8%. While retail companies are considering reducing space or relocating, owners of commercial buildings are increasingly integrating office or residential space into their properties at the expense of retail space. The trend towards a changed mix of uses is also being seen in shopping centres.

High-rise offices
- Investors’ appetite for large-volume office towers with a signal character remains strong with several properties in Frankfurt at the centre of attention. In July 2021, both the Skyper (35 storeys, built 2006) and the T1 (54 storeys, completion 2024) changed hands, for over €500 million and over €1 billion euros respectively. A sale of the Marienturm (38 storeys, completed 2019) may also take place in the next few months.

Data centres
- In terms of data throughput, Frankfurt is considered the world's largest internet hub. Due to the attractiveness of the location, even more new data centres are being built in the city and its surrounding area. Interxion, for example, began developing Digitalpark Fechenheim in August, which could supply 10,000 single-family homes with energy from waste heat alone after completion in 2030. Meanwhile, in the neighbouring municipality of Offenbach, CloudHQ is building one of the largest data centres in Germany. Several data centres are also to be built in nearby Hanau, among others for Google’s cloud services.

25 August 

COVID-19 pandemic - The number of new infections is increasing again in Germany. In a decision by the heads of the German federal states, vaccinated, recovered and tested persons are to be permitted liberties denied to non-vaccinated persons from 23 August 2021, even at 7-day incidence levels above 35 per 100k. This is an important signal for business. However, the country is still a long way from herd immunity (vaccination rate of over 80%).

Hotel sector - Hotels continue to face a challenging situation. The general ban on overnight stays was lifted in May 2021, however the number of overnight stays remains below pre-pandemic levels. In June 2021, for example, 39% fewer overnight stays were registered in German hotels than in June 2019. Business and trade fair travel in particular are recovering only sluggishly. Hotel chain Fleming's has reacted by announcing the closure of three of its nine hotels in Frankfurt.

Climate change - Both the private and public sectors are reacting ever more aggressively to climate change: Frankfurt, for example, is reducing the road space available for cars in the city centre in favour of cycling. In a draft law, the Berlin State Government has stipulated that from 2024 onwards, one fifth of the site area of new buildings must be green. And ever more investors are launching new funds that take consideration of ESG aspects in accordance with Article 8 of the EU Disclosure Regulation, especially in the logistics and housing sectors.

Commodity bottlenecks - Supply bottlenecks and rising commodity prices continue to weigh on the German economy. With far-reaching consequences: for example, some economic institutes have slightly downgraded their economic growth forecasts for 2021. And in the construction industry, many completions are likely to be forced to postpone until next year - with consequential further increases in real estate rental and purchase prices.


11 August 

Due to the Berlin’s tight residential rental market, the Berlin Senate decided that the conversion of let residential units into private condominiums cannot take place without the permission of the individual district housing office if a residential building comprises more than five units. Until early August this regulation was valid only for specific areas, from now until the end of 2025 it applies to the whole city.  At the same time, the Berlin Senate is still interested in purchasing a total of 20,000 residential apartments from their current owners Vonovia and Deutsche Wohnen. Vonovia meanwhile received clearance from Bafin (Federal Financial Supervisory Authority) to undertake a third attempt to take Deutsche Wohnen over. 

As the vaccination programme has lost some momentum and the number of new COVID-19 infections is increasing, if at a low level, there are concerns that autumn might bring another lockdown. Therefore, major retail chains and major retail unions started a pro-vaccination campaign ‘Live instead of lockdown. Get yourself vaccinated’ in shops and via social media channels and by offering vaccinations in busy locations, as an adjunct to shopping.  

Following surveys undertaken by ZEW, approximately 74% of firms in the information economy plan are to offer their employees the opportunity to work from home even post pandemic. Every second firm expects in the long term that more than 20% of their employees will work from home at least one day a week. German shipping company Hapag-Lloyd has announced it intends to implement a remote working proportion of 40%. 

27 July 

The German investment market for commercial real estate achieved a transaction volume of around €22.1 billion in the first half of 2021 of which the second quarter contributed €12.5 billion. The previous year's first-half result of just under €28.8 billion was thus missed by 23%. Compared to the H1 10-year average, however, the transaction volume is 13% higher. The largest deal so far was the sale of the ‘Fürst’, a mixed-use development on Berlin’s Kurfürstendamm to Aggregate Holdings for more than €1.2 billion. The three largest office transactions took place in Munich, including the trading of the Highlight Towers and the O2 Tower. Overall, new investment in office buildings and office developments totaled €9.4 billion and 43% of the total transaction volume.

In the top-5 German markets, Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, more than 4 million m² of new office space is under construction with 70% (2.9 million m²) of this due for completion within the next 18 months, 48% of which is pre-let. As total completion figures for 2021 and 2022 will be higher than in recent years and take-up figures are expected to be lower, the overall vacancy rate in the top-5 markets is expected to increase to 5.5% by the end of 2022. Purely speculative development projects which are not yet under construction are currently being carefully reconsidered and may be postponed.


13 July 

Since the end of June firms are no longer obliged to allow their office employees to work from home if they request it.  

Offices are becoming more populated again and, in consequence, city centres as well.  

Nevertheless, a law giving employees the right to work from home for a given number of days per annum is being considered by some political parties and Unions.  

A few large employers plan to offer spaces in regionally spread-out satellite offices to reduce commuting times while also clustering people together.  

In the first half of the year, occupiers signed new leases for a total of 1.1 million sq m of office space in the five major German markets.

The same total result was seen for the equivalent period last year, however, take-up figures in Düsseldorf and Munich are lower than 2020 while take-up increased in Frankfurt, Berlin and Hamburg.

Office vacancies increased in all five markets, most strongly in Berlin and Munich, nevertheless, vacancy rates in these markets are still below 4%, while Frankfurt’s vacancy rate is now 8.1%.  

Prime rents range from €28.50 per sq m in Dusseldorf to €46.00 per sq m in Frankfurt. 


01 July 

Last week, the revised national climate protection law passed the Bundestag and Bundesrat and in addition the Government agreed the National Climate Protection Crash Programme 2022.  

Germany has committed to being climate-change-neutral by 2045 with carbon emissions to be cut by 65% compared to their 1990 level by 2030.  

This means decarbonisation of real estate stock and eco-friendly new construction will become more or less a must, as carbon emissions of buildings are not to exceed 67 million tonnes; compared to 210 million tonnes in 1990.  

However, the law did not include measures to make photovoltaic roof arrays obligatory for new developments.  

In addition, the extra carbon price paid for fossil fuel heating of dwellings remains 100% borne by the tenants, proposals to split the costs between landlord and tenant were rejected.  

The elections for the German Bundestag will take place in three months, and in recent weeks the political parties have discussed and agreed their manifestos, almost all including carbon footprint reduction measures and measures to control residential rental growth rates.  

Meanwhile, in Berlin a petition on holding a referendum on introducing compulsory acquisition of large residential property companies achieved the required number of signatures. 


14 June 

Over recent days, ever more COVID-19 driven restrictions on business and public life have been eased, as the nationwide 7-day incidence figure has fallen below 20 new infections per 100,000 people and almost half of the population have received at least one vaccination, partly as prioritisation was dropped and many firms established in-house vaccination centres.  

Footfall in high streets is returning as shops, restaurants and hotels are permitted to welcome more customers and most cross-border travel no longer requires quarantine.  

Delivery of food at ‘cyberspeed’ - within 10 to 15 minutes of ordering has become ever increasingly popular over the pandemic year and is forecast to grow further.  

German food retailer Rewe therefore concluded a strategic partnership with speed delivery service Flink but will at the same time enlarge its own e-commerce channel and expand several of its own supermarkets into larger shops of at least 3,500 sq m of sales area.  

Topics that had slipped from public consciousness for many months have returned - specifically sustainability and carbon reduction.  

Driven by the EU and by national goals, demands to make real estate assets more sustainable are increasing.  

Last week it was revealed that one of the discussion points for the national crash program for climate protection is to make photovoltaic roof arrays obligatory for new developments.  


02 June 

The 7-day incidence figures have fallen below the threshold of 50 new infections per 100,000 people in most cities and counties, allowing the return of more personal liberties and bringing business life closer to pre-pandemic normal. However, social distancing and the wearing of medical face masks remain obligatory, the numbers of people visiting shops, hospitality and leisure infrastructure facilities are restricted and office employees should still work from home wherever and whenever the business processes allow. The latter rule remains in force until the end of June. 

Discussions continue regarding remote working in the future. The green party proposed giving employees the legal right to work remotely, the trade association regards this as a needless intervention into business processes. At the same time there is consensus that the traditional German culture of in-office working will move towards more location flexibility, including a change in the size of office spaces required by individual firms. For example, the German tourism company TUI Group announced that they plan to offer their 3,000 employees no more than 1,700 desks from 2022; a move supported by an employee attitude survey whose results clearly showed they wish to work from home more often. 

25 May

In many municipal areas, the 7-day incidence figures (the percentage of people testing positive for COVID-19) are now below the threshold of 100 new infections per 100,000 people, meaning that these cities and counties no longer fall under the rules of the national obligatory ‘emergency brake’ but those of the individual federal states, permitting specific easing regarding personal meetings and phased openings of retail, hospitality, personal services and sports facilities.

Every federal state has compiled transparent road maps for the easing of restrictions thus giving businesses more planning reliability than in previous months.  

However, physical distancing and the wearing of medical face masks remain obligatory. In addition, employees should still work from home wherever and whenever the business processes allow this. If this is not appropriate the employer has to offer COVID-19 testing twice a week. Thus far, approximately 10% of the German population are fully vaccinated and in addition over 20% have received a first vaccination. 

According to STR, the hotel room occupancy rate was 10.7% in the first quarter of 2021, a decline of almost 78% compared to the equivalent quarter in 2020. Footfall figures in the high streets are still at a very low level.  


2 April

In Germany's commercial property market, the most immediately visible impact of the Government measures taken against the spread of COVID-19 can be seen in the retail sector. 

Most non-food retail and all leisure retail is closed. Food & Beverage outlets are only open for take-away. Some retailers are trying to shift to alternatives like delivery services, especially restaurants, even though their turnover will not be as high as usual, it will at least help their chances of survival.  

The longer the resulting loss in turnover continues, the more difficult it will be for retailers to pay rent. According to the German Retail Association (HDE), 3 months without turnover would result in many medium-sized retailers becoming insolvent. Besides the obvious problem on the supply side, the consumers’ willingness to buy is also low right now, because of the economic uncertainty - see GfK consumer index

Restaurant chain Vapiano (230 restaurants in 33 countries; 55 in Germany) and steakhouse chain Maredo (37 restaurants in Germany and Austria) have already become insolvent, although Vapiano was known to be struggling long before this. 

The German Government is now offering help to affected businesses in the form of:  


  • Benefits;
  • Loans;
  • Tax deferrals; and 
  • “Kurzarbeit”.  


Only small businesses of up to 10 employees are eligible for benefits in the form of non-loan payments. The German Retail Association has criticised that medium-sized companies are not covered by this.   Additionally, a new bill has passed - effective 1 April to 30 June disallowing landlords to terminate contracts where their tenants (commercial or private) can’t pay rent because of the effects of the COVID-19 pandemic.  
Nevertheless, some companies with strong balance sheets, like Adidas, announced last week, they would cease rent payments, which has led to a public discussion about solidarity.  

Other major retail tenants like Deichmann and H&M have done the same, others are talking to their landlords about possible solutions. 

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