Savills has reported that the investment in German residential property that involve at least 50 apartments amounted to €755 million in the first three months of 2024. Prime yields for apartment buildings have remained constant at 3.6% for two quarters in a row, according to the international real estate advisor.
The current market shows a balance between high demand and limited supply, as many property owners are experiencing no need to sell due to an increase in rental income and generally cautious financing strategies. Additionally, with a tightening market for rental apartments, owners are expecting a rise in property values which is causing them to hold onto their properties for the time being.
Karsten Nemecek, Savills Germany’s Managing Director for Corporate Finance and Valuation, notes that although the residential investment market is reaching a stable point, there are emerging signs of renewed activity since the summer of 2023. An important aspect is the number of sales processes that are either being planned or are in progress, particularly by listed residential property companies, which might result in more available properties later in the year. At MIPIM, it was evident that residential properties are a top priority for many institutional investors, and Germany, being Europe’s largest residential market, receives considerable attention.
According to Matti Schenk, Savills Germany’s Associate Director of Research, the average vacancy rate for the top thirty German university cities stands at a low 1.1%. This indicates that there is a strong and unmet need for new housing in many areas. With the completion rate for new apartments being around 150,000 annually, demand continues to surpass supply, likely leading to even lower vacancy rates and increased rental prices.
Marco Högl, the Director and Head of Residential Capital Markets for Savills Germany, mentions that local market experts and regional entities often appear as buyers. The core market is experiencing smooth transaction processes, particularly for newer properties less than twenty years old that are being sold after the completion of the owners’ intended holding periods. There have been competitive bidding processes for such high-quality properties with purchase price multipliers ranging from 22.5 to 25 times in recent months. Additionally, given the expected rise in target rents, it seems that the lowest point for capital values on these properties may have already been passed.