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Residential real estate transaction activity remains weak, but price stabilisation trend gaining ground

Verena Bauer • 08/01/2024

Cushman & Wakefield (C&W) recorded a German residential real estate transaction volume of EUR 6.39 billion in 2023. A transaction volume of EUR 1.94 billion was reported for Q4.

  • Transaction volume of EUR 6.39 billion in 2023, around 50 percent lower than in 2022
  • Prime yield at 3.90 percent
  • Interest in residential real estate investments is growing 
  • Residential real estate as a factor of resilience in times of crisis
Focus on existing properties and few forward deals

The majority of residential real estate transactions in 2023 related to existing properties. Investors are currently looking for immediately commencing cash flows and fewer forward deals with long completion horizons. Development projects for which the completion date is more than six to twelve months in the future are shied away from.

In 2023, a number of large and significant transactions were completed. Vonovia, in particular, made a significant contribution to this with its extensive sales programme. For example, two large new-build portfolio transactions were concluded with CBRE IM: 1,200 apartments in Berlin were sold for EUR 357 million, and 1,350 apartments in five residential complexes in Berlin, Frankfurt and Munich were sold for EUR 560 million.

In addition, Apollo has concluded two equity investments of 30 percent each in Vonovia portfolios. The first relates to the Südewo portfolio, which comprises 21,000 apartments in Baden-Württemberg with a volume of EUR 1.0 billion. In Apollo's second equity investment, the company paid around EUR 1.0 billion to invest in 31,000 apartments in northern Germany. However, C&W has not included these two deals in the stated transaction volume of EUR 6.39 billion, as they do not comprise majority stakes in real estate.
In Berlin, Quantum has acquired Wasserstadt Mitte in Berlin, a new urban neighbourhood with 711 apartments, from Adler Real Estate as part of one of the largest deals of the year. In the Munich market, the purchase of the Hohenzollern square with its 230 apartments by the city of Munich for 125 million euros was particularly significant. 

Stabilisation of the prime yield
The prime yield rose by 110 basis points from 2.80 per cent to 3.90 per cent over the course of the year. For 2024, C&W does not expect any further increase, and thus a stabilisation of the residential investment market.

Low activity in student residences and micro-living
Student residences and micro-living remain in high demand among investors, but a lack of product is slowing transaction activity. The general reluctance to invest in operator properties last year also affected this segment. However, the high demand for living space in student residences and micro-living properties remains strong and has a lot of catching up to do. The prime yield rose from 3.80 percent at the end of 2022 to 4.40 percent now.

Jan-Bastian Knod, Head of Residential Investment Germany at C&W, comments: “The past quarter was not characterised by the usual year-end rally. Nevertheless, it is evident that the first signs of stabilisation are occurring and that there is no further price fall. We expect the resilience that characterises residential real estate, even in times of crisis, to bring about early stabilisation in 2024.” 

Housing construction target clearly missed 
In 2023, very little was built in Germany, with construction falling far short of the political target of 400,000 newly-built apartments per year. Compared to the previous year’s period up to October, the number of building permits fell by 25.2 percent. As of October 2023, around 218,100 apartments had been approved. In new residential buildings, 179,800 apartments were approved by October – the lowest figure since 2012. However, construction activity is expected to increase in 2024 due to possible interest rate cuts, lower inflation and decreasing construction costs.

ESG has high priority in acquisitions
The topic of ESG has become a crucial factor in investment decisions and dominates all transaction processes. Discounts for properties that do not meet the ESG purchase criteria are increasingly being made. These properties are of particular interest to investors with an opportunistic approach.

Residential investment market Germany Q4 2023: Transaction volume and prime yield 

 

 

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verena bauer
Verena Bauer

Head of Business Development Services, Germany • Frankfurt

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