Market in Minutes Residential Market Germany

Transaction volume increases, while rents grow more slowly

In 2024, residential property in Germany was traded for around €8.8bn (transactions of 50 units or more). This was 14% more than in the previous year.

The number of units sold even increased by a third compared to the previous year and totalled around 62,000. With a transaction volume of almost €3.9bn, the 4th quarter was by far the strongest quarter in terms of sales since the interest rate turnaround. In addition to smaller individual properties, larger portfolios have also found buyers and transactions are taking place in both the core and value-add segments. This reflects the high demand for residential property and shows that investors with very different investment strategies are finding suitable products.

More Manage-to-Green transactions
A lot of capital is now available for so-called manage-to-green strategies. In addition to project developers, many fund managers are also expanding their focus and launching special value-add vehicles. On the other hand, owners of properties with a poor energy efficiency are increasingly looking to dispose of them. As a result, there were more sales of individual properties and portfolios in 2024 with the aim of modernising and upgrading energy efficiency. We expect that refurbished residential properties will be the future product for risk-averse investors and that many properties will be sold on to them in a few years' time.

Record high share of project development purchases
While more investors are focussing on manage-to-green strategies, many risk-averse investors continue to focus on new builds. In total, around €3.3bn was spent via forward purchases last year, around twice as much as in 2023. The 37% share of the total transaction volume is the highest we have measured since we began collecting data in 2009. The main volume drivers for forward purchases were two new-build portfolios sold by Vonovia and its subsidiaries to HIH, as well as the Konnekt and Greenpark projects, both located in Berlin. Institutional investors in particular want to avoid refurbishment risks and regulation through the rent cap and continue to focus heavily on residential properties built in 2014 or later. However, as recently completed existing properties are relatively rarely for sale, the acquisition of project developments is often the easier way to obtain new-build products. As the number of building permits continued to trend downwards last year and new construction activity is not expected to pick up in the short term due to the further rise in the construction cost index, the supply for investors focussing on new construction will become scarcer.

Strategic purchases of portfolios as volume drivers  
In addition to new builds and manage-to-green products, another segment of the residential property market gained momentum last year. Towards the end of the year, several sales of large-volume portfolios of rather basic property and location quality took place. The fact that such residential portfolios have become more liquid contributed significantly to the increased transaction volume. It remains to be seen whether these strategic purchases will continue in 2025 and whether investors will pursue an accumulation strategy as they did during the financial crisis. However, very opportunistic products in markets with high vacancy rates are still rarely traded.

Outlook 2025
We expect a slightly higher transaction volume for the current year 2025, reflecting the overall increase in investor interest in German residential property. On the supply side, listed companies are likely to have largely completed their sales programme, which should limit the supply of larger portfolios. On the occupier market, the signs are more mixed than in previous years despite the ongoing housing shortage. According to some data collected during the year, net immigration in many cities is likely to have been lower in 2024 than in previous years, resulting in less additional demand on the housing market. This could be one reason why asking rents for both re-letting and new builds have not risen any further on average in the top 6 cities in recent months.

Growth in cities is also expected to slow in 2025, and the gloomy economic environment could slow down the influx of skilled labour and also make households reluctant to move to a more expensive apartment. This will dampen the short-term prospects for rent increases. The lock-in effect on the housing market is likely to become entrenched, which will further limit rent increases in residential portfolios. However, as a rapid increase in new construction activity is unlikely and this would not take effect for several years anyway, housing will remain very scarce for some time to come. In view of this starting position, the fundamental data for landlords and investors remains favourable overall, especially as the Federal Institute for Research on Building, Urban Affairs and Spatial Development expects long-term population growth in economically strong cities and regions. It remains to be seen what measures a future German government will take in terms of housing policy, but strong deregulation is an unlikely scenario. However, the housing policy vacuum, which is likely to last a little longer, is likely to lead to uncertainty among investors and tenants in 2025.

All illustrations and the corresponding data can be downloaded here.