German commercial investment market in 1H 18

05 July 2018

Second highest half-year total in the current market cycle – investors are pursuing defensive investment strategies

  • Transaction volume of €25.2bn (-8% compared with 1H 17)
  • Investors are seeking potential rental growth and defensive investments
  • Inclination to sell remains low – private-equity funds continue to make acquisitions
  • No observable decline in demand in spite of increasing risks
  • Projection for 2018: transaction volume of €55bn; little further yield compression

The German commercial investment market is heading for another strong year in terms of investment volume. During the first half of the year, properties changed hands for more than €25.2bn. While the transaction volume was down by approximately 8% year on year, this still represents the second highest investment volume for the corresponding period during the current market cycle.

“For many investors, investing in German commercial property continues to offer prospects of high value stability and further capital growth,” says Marcus Lemli, CEO Germany and Head of Investment Europe for Savills, adding: “Expectations of further rental growth have become a significant driving force for investors to allocate capital to German real estate.”
Despite the continued surplus demand, the majority of investors remain risk-averse. By way of example, there was no increase in investment activity outside of the top seven cities. In fact, the seven largest German real estate markets accounted for around 68% of investment during the first half year, which is above the five-year average of almost 64%. “The majority of purchasers are assuming that we are in the late stage of the current cycle and are therefore interested in defensive investments. There is a particular focus on properties in good locations that promise long-term rental income,” says Matthias Pink, Director and Head of Research Germany for Savills.

In terms of sectors, office properties were particularly high on the agenda in the first half of the year. These accounted for around 40% of overall investment with a transaction volume of approximately €10bn. The retail sector ranked second with €5bn, or 20% of the total volume, followed by logistics and industrial property, which was responsible for almost €3.2bn (13%) of investment. “Since the average vacancy rate in the top six office markets is still only 4.7%, office properties in particular currently promise stable or even rising rental income,” says Pink, adding: “The market for logistics properties continues to benefit from the structural growth of the logistics sector, while risk-averse investors in the retail sector are becoming more reserved.”

The healthcare property and care property market witnessed a significant increase in investment volume. The transaction volume rose almost fivefold compared with the corresponding period last year to more than €1.6bn. By far the largest transaction was the acquisition of a 50% share in a hospital portfolio by a Primonial fund, which was also by far the largest deal during the year to date. The transaction volume for hotels also confounded the overall market trend, increasing by 41% to around €1.5bn. “The increasing investment in healthcare property, which is relatively independent of economic conditions, and the acquisition of operator-managed properties with long leases could also be manifestations of defensive investment strategies,” says Pink.

Despite the considerable increase in values during the market cycle to date, the inclination of many investors to sell remains low. During the first half of the year, asset managers and fund managers, insurance companies and pension funds, open-ended special funds, property companies / REITs and open-ended retail funds all made significantly greater purchases than disposals. Private-equity funds alone made net investments totalling almost €1bn during the first six months of the year. The three largest purchaser groups were asset managers and fund managers (26% of the transaction volume), open-ended special funds (18%) and property companies/REITs (13%). German purchasers accounted for around 55% of the transaction volume, which was marginally above the five-year average of 53%. “The investor landscape remains strongly diversified, reflecting the high level of confidence in the German real estate market,” says Lemli, adding: “The fact that opportunistic players also continue to buy underlines that investors still perceive significant upside potential in the market. However, this is likely to be primarily driven by higher rental income.”

While investors are pricing in further rental increases, capital growth from falling yields is likely to diminish, with yield compression having significantly weakened in comparison with previous years. In the top seven cities, prime office yields hardened by an average of 10 basis points compared with the previous quarter and currently stand at 3.2%. Prime yields on high-street properties also hardened marginally by 10 basis points to 3.2%. “We expect only modest further yield compression during the remainder of the year, followed by a phase of stable yields,” predicts Pink.
Global risks, particularly in the form of simmering trade wars, are likely to impact ongoing developments in the German commercial property market over the coming months. “The effects on the German economy remain limited. However, the strongly export-oriented national economy would be significantly affected by the consequences of increasing protectionism,” says Pink, emphasising: “Industrial production has already weakened recently and clouded business sentiment. This poses risks to economic growth and hence demand in the occupier markets,” says Pink.

“Although the risks are increasing, there are still currently no indications of weakening demand from investors in the commercial investment market,” says Lemli. “In fact, the stable political conditions in international comparison and continued excellent fundamentals could even result in Germany's status as a safe haven for investment being further enhanced.” Savills still expects the transaction volume for the full year to reach up to €55bn.


General Enquiries



Key Contacts

Marcus Lemli

Marcus Lemli

CEO Germany / Head of Investment Europe
European Investment


+49 69 273 000 11


Matthias Pink

Matthias Pink

Director / Head of Research Germany


+49 30 726 165 134