Investment Market Overview

Q2 2023

Trend reversal in the German investment market is a long time coming

July 24, 2023

There has been no change in investors’ fundamental reluctance to buy and sell real estate in the second quarter of 2023: the €14.9 billion currently in the statistics for the first half of the year roughly corresponds to the 2012 result. Nonetheless, it is 53 per cent below the long-term average and 59 per cent lower compared to the same period last year. Larger transactions are still absent, especially in the office sector and portfolios.

Consequently, the answer to the question of whether the investment market is fully functioning again is a clear “no”. This is borne out by a transaction volume of €7.1 billion in the months from April to June, which is even lower than the volume of €7.8 billion recorded in the first three months of this year. While at the beginning of the year there were still hopes of a significant recovery in the second half of the year, this is now unlikely to be forthcoming until next year.

The rapid rise in interest rates and banks' reluctance to lend have barely narrowed the general ask-bid gap so far. However, we see that the capital pressure on sellers is steadily increasing due to the high operating and refinancing costs whilst many buyers are now confident in their plans and are not prepared to buy at previously set prices in many locations.

Recent announcements by the European Central Bank that it will continue to raise interest rates - albeit at a slower pace - remain a principal focus when looking ahead to the coming year. This is because it is still difficult to determine prices and there is uncertainty about the further development of property yields and their gap in relation to the (nominal) interest rate of long-term government bonds, which can be regarded as adequate. The pressure on yields increases with each new interest rate hike because alternative investments become more attractive. At the same time, in such a scenario, the real estate quotas of institutional investors also rise, even if they have not added any new properties to their portfolio holdings. This is one of the key differences to the 2008/09 financial crisis, when real estate quotas were low and there was corresponding scope for investment, leading to a relatively rapid recovery of the investment markets.

There is another difference between the current situation and the 2008/09 financial crisis which gives cause for hope: In contrast to the financial crisis when demand was focused on Core products that were perceived to be safe because the rental markets were also weakening considerably, Value-Add properties, i.e. products for which compromises have to be made in relation to ESG criteria or the remaining terms of the leases, are currently much more in investors’ line of sight. Investors with the corresponding expertise and capacity see an opportunity to generate added value here. It is therefore a matter of examining the options in detail, but the transaction processes take a correspondingly long time until a deal is finally concluded.

€15 bn

volume of transactions
in H1 2023

-59 %

compared to H1 2022

Forecast of €40 billion for the year as a whole – a slight recovery is expected by the end of the year

“Wait-and-see” remains the order of the day at the end of the first half of the year. Nevertheless, the market still offers investment opportunities, especially for equity-rich buyers. And in sectors such as the Retail property segment where repricing has already manifested itself more clearly, or in Logistics and Residential where structural indicators ensure high demand, we expect market activity to pick up slightly in the coming months. The willingness to sell will increase again for the reasons mentioned. We are now setting our 2023 forecast for the transaction volume at €40 billion. This would roughly correspond to the 2012 result and would be around 47 per cent below the 10-year average.

For office properties, apart from the search for the right price, there is still great uncertainty about the future of this real estate segment. News from the USA about rising vacancies and a very sluggish return of employees to offices in the major cities is not helping to calm things down. But the USA is not Germany and the differences need to be explained to dispel the scepticism of some international investors. The situation of the US office markets is not comparable with Germany or Europe. Although a selection is taking place in our office market, we assume that the office property segment will remain one of the most important segments in the real estate investment market in the future.

Due to the strict investment criteria and the heterogeneity of the properties held within them, portfolios are currently not at the top of investors' shopping lists. Just €5.1 billion is accounted for by such package sales, despite portfolios making up seven of the ten largest transactions of the year. At 68 per cent, the decline compared to the previous year is even more significant than for single-asset transactions (-51 per cent). Most investors are currently focusing on low-volume transactions of between €40 million and €80 million which are easier to finance. However, it is mainly equity-rich investors who are active in this segment. The share of high-volume deals is correspondingly low: in the first half of the year, just 20 deals above the €100 million mark were counted, compared to 69 in the same period last year.

Number of portfolios

Volume each ≥€100 mn 


H1 2022


H1 2023

There is no change in the real estate segments compared to the first quarter of 2023. The Living segment, which includes residential properties and care homes, remains in pole position with €5.02 billion and a share or around 34 per cent at the end of the first half of the year. This means that it has increased its lead over the other segments with its performance principally due to the partial sale by Vonovia of a residential portfolio (Südewo portfolio) to Apollo for around €1 billion. A total of €3.07 billion of office properties changed hands which means that just one in five Euros has been invested in offices so far this year. Nonetheless, next to the Living segment, Logistics, Hotels and Mixed Use recorded slight transaction gains compared to the first quarter of the year.

Transaction volume in Germany’s seven major cities remains weak - only Stuttgart recorded a rise

Historically, most office property transactions have taken place in one of Germany’s major cities. However, due to the current restraint being exercised by buyers and sellers, transaction activity in the seven real estate strongholds is also suffering. A total transaction volume of just €7 billion was registered, down 62 per cent compared to the previous year. Here, too, it is “Back to 2012”, because that was the last year in which the volume was even lower. Frankfurt continues to be severely affected. Here, the previous year's downturn of 84 per cent was largely repeated over the last quarter. Hamburg did not fare much better, with property sales of around €740 million, some €100 million more than in Frankfurt but, at -80 per cent, at a similarly disappointing level. And yet there is a ray of hope: €810 million-worth of properties were sold in Stuttgart. This not only puts the Baden-Württemberg state capital in third place in the current ranking behind Berlin (€2.8 billion) and Munich (€1 billion) but is also a quite remarkable increase of 19 per cent over the previous year, which was primarily driven by residential properties from the Südewo portfolio.

Yields continue to rise - risk spread for real estate continues to widen

Although it is still difficult to assess the development of interest rates, volatility has decreased significantly. Interest rates on financing (5-year swap rates) have stabilised at between 3.0 per cent and 3.2 per cent in recent months, as have yields on 10-year government bonds which currently stand at 2.4 per cent. The risk premium for real estate has therefore risen to just under 140 basis points if the current average prime yield for offices in the seven real estate strongholds (which has risen by 25 basis points compared to the previous quarter to its current level of 3.78 per cent) is taken as a basis.

A gap of slightly more than 90 basis points still remains in relation to interest rates for financing including bank margins, and so a positive leverage effect is not yet evident. This applies to all real estate segments whose yields are below 4 per cent. For retail properties, however, the prime yields in some locations are once again significantly above the interest rates for financing. Yields for retail parks are at 4.4 per cent, they are still at 5.0 per cent for shopping centres and 5.5 per cent is currently even being paid for individual retail warehouses. The rise in yields has also continued at a moderate pace in the Logistics segment, where an increase of 10 basis points compared to the first quarter to 4.03 per cent has been observed. The more accentuated inverse interest rate structure nevertheless gives hope that interest rates will adjust to the yield level again sooner or later and not vice versa.

JLL expects yields to rise further across all real estate segments and sectors by the end of the year. These will most likely range between 10 (commercial buildings and logistics) and 50 basis points (offices). This development also supports the hypothesis we put forward at the beginning that momentum in the transaction markets should accelerate somewhat towards the end of the year. In addition, rents continue to trend upwards. Although these will not compensate for the losses in value that are manifesting themselves as a result of the rise in yields, they will at least mitigate them.

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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