Investment Market Overview

"Bottoming out". This is how international market participants describe the phase we are currently in. The figures underline this: In the first nine months of 2024, a transaction volume of around 23.4 billion euros was recorded on the German real estate investment market. This represents an increase of five percent compared to the previous year.

After the turbulence of recent years, hardly anyone had expected a rapid upturn in the real estate markets. However, few had feared that it would take quite so long for investors, occupiers, and companies to regain a certain degree of planning security. This required interest rate cuts by central banks as a signal, and this point seems to have been reached. More and more players are switching from wait-and-see mode to active mode because there are increasingly comparable values through completed transactions. At the same time, it is evident how much the market has learned to deal with the parallelism of several political and economic crises and is not deterred from its cautiously positive course even by the escalation in the Middle East and the upcoming US election.

The mood in the global investment markets has improved. According to a JLL survey of investors, more than half of those surveyed say that the situation in Europe will improve in the next six months. At the end of 2023, only 23 percent expected this. And the German investment market, as one of the most liquid and transparent, should also benefit from this. The initiation of the interest rate cut cycle in Europe and also in the USA may act as a stimulus, although the realized interest rate steps by the ECB and the FED have hardly had a noticeable impact on financing rates. These were already priced in, but the market's expectation of lowering key interest rates alone has led to stability in monetary conditions.

Thus, the current course of five-year swap rates, which reached its lowest level in more than two years at 2.22 percent on September 27, can also be interpreted as meaning that the financial markets are relying on the central banks maintaining their chosen path. The basis for a revival of the transaction market, liquidity in the form of debt capital, therefore seems to be intact again, which was also confirmed by the recent results of the JLL Real Estate Financing Index Difi, in which the surveyed financing banks indicated a significant jump in optimism regarding the situation and expectations in the financing market.

However, this will not lead to a sudden ignition of a fireworks display of sales, and from a neutral point of view, one can only wish for a moderate upswing, without exaggerations and without unrealistic fantasies. This realism characterizes the new market cycle and finally leaves behind the unhealthy decade of the "zero interest rate environment".

The results in the German investment market reflect precisely this development. Although there is a slight increase in investment transaction compared to the previous year, the twelve-month comparison is somewhat lower than at the half-year mark.

Equity-strong investors continue to use the current market phase to expand their investment portfolio with real estate. Family offices and wealthy private individuals are particularly active here. Institutional investors, on the other hand, are still acting somewhat more cautiously, but interest in real estate is slowly growing again in this group of actors as well. Among all currently active buyer groups, we observe an increased interest in logistics and residential properties. It is therefore not surprising that these two asset classes account for almost 50 percent of the total volume invested in the first nine months. Infrastructure investments such as the purchase of data centers are also becoming increasingly popular with investors, after the leading AI providers triggered a boom in this segment. Here we expect steadily increasing transaction volumes in the coming years, which, however, will not reach the sum of the established asset classes and will continue to be seen as a supplement to existing real estate portfolios.

Office and retail properties are almost tied for third place behind Living and Logistics with 17 and 16 percent respectively. While no noticeable revival can be observed in offices and quarterly volumes have been consistently fluctuating around 1.2 billion euros since the first quarter of 2023, five shopping centers found new owners in the current quarter. The restructuring of this asset class is in full swing, and at the current price level, there are good opportunities to reposition, renovate, or even combine such centers, which are mostly aging, with other uses.

The increase in the investment market continues to be based exclusively on single transactions. These total 16.2 billion euros in the first nine months and thus account for more than two-thirds of the total volume. Compared to the same period of the previous year, there is a significant growth of 17 percent. Portfolios are still rather rare. Here, JLL has registered a turnover of 7.2 billion euros, 15 percent less than in the previous year. At least the number of such package sales has remained almost stable with a total of 85 transactions compared to 2023, when there were 89 deals. The significance of portfolios for the overall statistics becomes clear when looking at the largest transactions of the year: Here, portfolios and single deals are tied with five transactions each. If we consider volume and portfolio as a measure of investors' risk, purchase and sale willingness and banks' willingness to finance, the third quarter gives reason for optimism. Of the five largest transactions, four were portfolio sales, all with volumes in the clearly triple-digit million euro range.

In a broader view of all transactions with a volume of 100 million euros and larger, there is a clear revival of the market with currently almost 50 transactions - a strong increase compared to 2023 with only 35 deals. For the last quarter of the year, we expect a continuation of the moderate upswing. However, we do not expect a year-end rally, as is often the case in a fourth quarter. From the current perspective, a transaction volume of 37 billion euros seems realistic, and this would also mean that more than 13 billion euros would have to be traded in the months of October to December.

There were no outstanding changes when looking at the seven hotspots. At twelve billion euros, around 31 percent more was invested in real estate in the first nine months than in the same period of the previous year. The share of these markets in the Germany-wide transaction volume rose from 41 percent to currently 51 percent. Berlin continues to lead the ranking with the strongest transactions, with just under 4.5 billion euros, equivalent to an increase of 49 percent. However, Dusseldorf achieved a higher growth rate - here the increase was 52 percent to one billion euros - and Munich with 60 percent to 2.7 billion euros. In Hamburg, transaction activities increased in the past quarter, and the percentage minus at the half-year mark has turned into a small plus of two percent. Stuttgart, on the other hand, remains deep in the red at 48 percent. Frankfurt can more than match the previous year's result and records a solid plus of 23 percent. The Main metropolis is traditionally very "office-heavy". If there is more confidence in the office sector again and sellers and buyers increasingly find each other, activities in Frankfurt will increase even more strongly.