Leaseholds in Major German Cities

Analysis of their value drivers and significance on the investment market

The German heritable building right is celebrating its 100th anniversary this year – and with it the possibility of splitting title to the site and the building into two independent rights. Many major cities such as Hamburg and Frankfurt have many leasehold sites. Without losing title to their property, they make the land available for development in return for payment – with an eye on social or planning policy objectives, or to ensure the long-term economic exploitation of their interests.

Separation of Land and Building

In Germany, in the commercial sphere, leaseholds are frequently used where there is a particular economic, cultural, historical or government interest, such as for airport terminals and railway stations, ports or former government sites, or to promote local and economic development. Leaseholds are found across all use categories.

Analysed by use, the statistics are dominated by office investments. At € 2.4 billion, they have a 52% share, followed by hotels with 16% and retail properties with 15%. Basically, in the top seven cities the largest share is accounted for by office investments. Almost € 64 billion was invested in office properties over the three-year period; of this, the share of leasehold properties was below average, at 3.8%.

The chart shows very positive movement in values of the leasehold properties under consideration. Between the end of 2014 and the end of 2018, the overall increase was 64%, an annual growth rate of 13%.


But it is not only the major cities such as Berlin, Hamburg, Munich and Frankfurt which are increasingly focusing on granting leaseholds to preserve their influence on urban development on the one hand and to counteract speculation in building land on the other. Smaller municipalities also want to use them as an urban planning instrument to achieve their own economic, social and housing goals. They include the City of Freiburg which intends to give priority in future to granting leaseholds instead of the sale of land, and Regensburg where council land is to be allocated only by way of leaseholds.

If reality matches these political pronouncements, players in the property sector will have no choice but to get to grips increasingly with leaseholds. This will affect both developers, which will be constructing buildings on sites granted to them by way of leaseholds, and investors who will acquire the properties either at an early stage during a development project or as final investors. The volume of transactions in leasehold properties is likely to increase over the medium-term.

For which investors are leaseholds suitable?

How do we determine the value of leaseholds?

We answer these and other questions in the report "Leaseholds in Major German Cities - Analysis of their value drivers and significance on the investment market" including valuation case study and sensitivity analysis.