Investment Market Overview

Q4 2022

German investment market ends 2022 with the handbrake on

January 20, 2023

The German investment market ended 2022 with a total transaction volume of €66 billion, including the “living” segment. As already forecast in December, the usual fireworks display of transactions at the end of the year failed to materialise this time. This result is around 41 per cent down on the record year of 2021. On the other hand, it only fell some 8 per cent short of the 10-year average. The fact that the comparison with the long-term is not so dramatic is due to the strong first half of 2022, whilst the second six months of the year were increasingly characterised by restraint and market observation on the part of investors. We expect that this trend will initially continue into the first half of 2023, but will then gradually ease. Market players want to make sure that the interest rate rises slow down again or stall before they invest.

The reasons for the restrained investor activity are widely acknowledged: the European Central Bank’s (ECB) further hike of 50 basis points in key interest rates in mid-December may have been a somewhat smaller step, but comments by the monetary watchdogs left no doubt that inflation is still clearly too high and that further rate rises could follow. In the wake of the interest rate decision, yields on 10-year government bonds and financing interest rates rose sharply again. It remains to be seen how the recent decline in price increases to 8.6 per cent in December will be received by the markets. Caps on gas prices and lower oil and petrol prices are mainly responsible for this quite significant decline. Nevertheless, core inflation (excluding energy and food) continued to rise and is expected to reach 5.2 per cent. This will be the ECB's main focus in the coming weeks and months, and a further rate hike of 50 basis points in January would certainly not be a surprise.

Yield difference between government bonds and real estate lower than at any time since 2008

With the return of interest rates, traditional financial investments have once again shifted into the focus of institutional investors. From a nominal perspective, German government bonds in particular have become more attractive than real estate, stemming the flow of capital into the real estate market, especially in the second half of the year. As a result, the gap between real estate yields and 10-year government bonds narrowed to around 0.5 percentage points during 2022; such a low yield differential has not been seen since 2008. By the end of December, this spread had widened again to almost 1 percentage point, mainly due to the rise in real estate yields. Nevertheless, it is clear from the 2022 result that significantly less fresh capital was available for real estate investments overall.

As a result, the investment focus is no longer on the flight towards zero and negative interest rates, but on inflation proofing and hedging real estate yields. The longer the inflationary conditions persist, the more insurers, pension funds and private investors will have to deal with the loss of purchasing power and assets, and focus on investments that offer the best possible protection against inflation. This orientation phase should continue for a few more weeks, but as soon as price levels have been recalibrated, more capital should flow back into real estate. Both private investors and foreign funds have built up a lot of money in 2022 and are ready to invest, but they are still waiting to see if further corrections follow. Nonetheless, these increased yield expectations do not always materialize. As soon as interest rates and economic expectations improve and long-term interest rates fall, we will see a swift rebound in yields. Waiting too long can also be a mistake. The only way out of the original core capital is into a style drift, to buy in to higher expected returns with higher risks. A style drift occurs when the stated investment strategy and the actual implementation no longer coincide.

€66 bn

volume of transactions
in 2022

-41 %

compared to 2021

Transaction volume in the final quarter of 2022 lower than at any time since 2012

Without the traditional year-end rally, the fourth quarter of 2022 was roughly on a par with the second quarter, with a transaction volume of €13 billion. This made it the weakest final quarter of the past ten years. The last time the market achieved a similarly low result was in the fourth quarter of 2012 with €13.6 billion. Nevertheless, some large transactions have taken place: after all, 22 properties or portfolios with sale prices of more than €100 million each found new owners. The largest transaction in the fourth quarter was the acquisition by CPI Property Group of a stake in S Immo, which has now grown to almost 90 per cent of the shares. Out of this acquisition, properties in Germany accounted for a transaction volume of over €1.2 billion. The second largest transaction was the sale by Aggregate Holdings to the Austrian company Imfarr of further parts of Berlin’s Heidestrasse Quarter for just under €490 million. But it is not only these large-volume transactions that indicate that the investment market continues to function. This is because transactions in the mid-price bracket of €50 - 100 million add up to just under €3 billion for the three months from October to December and to around €14.2 billion for 2022 as a whole, which is just around €1.4 billion less than in the record year of 2021.

As in previous years, the bulk of the transaction volume was attributable to domestic investors. But international players also continue to have confidence in Germany’s real estate market. Six of the seven largest transactions in 2022, which together amounted to over €11 billion, took place with foreign participation on the buy-side.

Nevertheless, Germany’s capital, alongside Cologne, suffered the highest percentage loss in traded volume. The volume in Berlin is expected to be almost €11 billion, a decrease of 71 per cent compared to 2021. However, Berlin’s 2021 result was significantly distorted by Vonovia’s takeover of Deutsche Wohnen. Only Hamburg (with €6.3 billion) and Düsseldorf (with €2.8 billion) were able to get close to repeating their previous year’s result. Nevertheless, overall the cautious behaviour of investors and lenders and the resulting lack of larger transactions is particularly evident in Germany’s Big 7 markets. The approximately €32 billion traded during 2022 is equivalent to an above-average decline of 55 per cent compared to the previous year and, when aggregated, the Big 7 markets accounted for just 48 per cent of the nationwide transaction volume. The good news, however, is that the transactions which have so far failed to materialise have not been completely abandoned and the sales processes may resume relatively quickly in 2023 if market factors consolidate.

Significantly fewer portfolio transactions

The volume of single-asset transactions reached €38.6 billion at the end of the year, 27 per cent down on 2021. However, the decline in the volume of portfolio transactions was significantly greater: they generated just under €27.4 billion, 53 per cent below the previous year's figure.

Number of portfolios

Volume each ≥€100 mn 





At almost €22 billion, most capital was invested in office properties (33 per cent of the total transaction volume), followed by the “living” segment with €14.4 billion (22 per cent). Transactions in logistics properties totalled €9.6 billion, increasing their relative share to almost 15 per cent. The revival of retail properties that took place at the end of the third quarter was confirmed in the year’s overall result, bringing the annual total to €9.4 billion (14 per cent) and positioning this real estate segment just behind logistics properties; food-anchored retail warehouses and supermarkets in particular were able to maintain their reputation as anchors of stability.

Whilst the last quarter of the year was also the weakest for the two strongest real estate segments, “living” and office, this was not the case for logistics and retail, and certainly not for mixed-use properties. This real estate segment achieved its best quarterly result with €2.3 billion, bringing its annual total to €6.3 billion. This result includes the largest transaction, the corporate takeover of S Immo. In the current market, however, diversification across several uses appears to be an effective means of keeping the property-specific risk as low as possible, even for single-asset transactions. Nevertheless, the fundamentals are right for both living and offices. Far too little is being built in the residential segment considering the continued rise in demand for housing. Meanwhile, the high employment rate in the service sector is significantly boosting rental take-up in the office segment. Both suggest a strong rebound in these segments.

Yields rise significantly

With central banks’ zero interest rate policies coming to an end, not only did alternative investment assets become more attractive again in 2022, but interest rates on borrowings also increased. A snapshot comparison between 3rd January 2022 and 30th December 2022 shows an increase in 5-year swap rates of 319 basis points to a level not recorded since 2008. It was therefore only a matter of time before property yields also showed a corresponding shift. Over the year, prime yields in the individual real estate segments rose between 15 basis points for shopping centres and 90 basis points for logistics properties. In between them are prime yields for office properties which rose by an average of 67 basis points in the real estate strongholds, and retail warehouse products and high-street retail properties which rose by an average of 40 and 30 basis points, respectively. For offices, an average of 3.31 per cent means that a “3” has appeared in front of the decimal point for the first time since the second quarter of 2019; for properties of only average quality in prime locations, initial yields have even risen to 4.22 per cent; and for older office properties in secondary locations with short unexpired lease terms, there is a “5” in front of the decimal point for the first time since 2018.

Investors can price in more risks again

The yield level also affects the behaviour of players in the market. The sometimes very low yields in the Core segment in the past have also severely limited buyers’ appetite for risk. With somewhat higher yields, risks can be priced in again; in itself, this is not bad for a market and it helps to create sufficient liquidity. The current developments could therefore encourage a speedier completion of some transactions once again. The current price level also reflects the behaviour of investors and the financing banks, which have significantly increased their risk aversion.

The outlook for 2023 will depend on coming to terms with the new underlying conditions. The fact is that there will not be a return to the zero interest rates of previous years and the correction process cannot take place without leaving traces when lending conditions quadruple. It will be essential to find a corridor into which margins and capital market interest rates can settle and with which investors and developers can reliably calculate. The central banks have the reins in their hands. For investors, there are currently good selective entry opportunities in the wake of rising yields, before a consolidation or even a new yield compression could set in during the second half of this year.

Contact us

Our Capital Markets contacts:

Capital Markets DACH & Office Investment Germany:
Jan Eckert, CEO Switzerland & Head of Capital Markets DACH

Industrial Investment:
Diana Schumann, Co-Head of Industrial Investment Germany
Dominic Thoma, Co-Head of Industrial Investment Germany


Residential Investment:
Michael Bender, Head of Residential Germany

Retail Investment:
Sarah Hoffmann, Head of Retail Investment Germany

Helge Scheunemann, Head of Research Germany


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