• Transaction volume of €17.2bn (+3% compared with 2018)
• 11% fewer apartments sold – average price up by 16% to around €145,000 per apartment
• Public-sector investment more than two and a half times the total for 2018
• German purchasers increased their share of the investment volume to over 90%
• 39% of all apartments sold were situated in the top seven cities (2018: 25%)
• Transaction volume for student apartments and micro-apartments up by 60% year on year

Properties in the German residential investment market (transactions for at least 50 apartments) changed hands for approximately €17.2bn in 2019, representing an increase of 3% year on year. A total of almost 118,000 apartments were transacted (-11% compared with 2018). While the number of transactions declined (-18%) their average size rose by 22% to approximately €71m.

“For the third time in succession, the transaction volume exceeded the €15bn mark. Contributing factors included further increases in capital values as well as an above-average proportion of investment in the top seven markets. Almost 39% of all apartments sold were situated in one of these cities,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, adding: “While additional regulation, particularly in Berlin, caused uncertainty among investors, the public sector made massive acquisitions. This also contributed to the previous year's total in the investment market being surpassed.”

German investors were once again responsible for the majority of market activity, accounting for more than 90% of the transaction volume. This also represents a further significant increase compared with the previous year, when German purchasers accounted for 78% of the investment volume. “The regulations on the table which, to some extent, vary from one federal state to another or even from one municipality to another, are likely to make market entry more difficult for international investors. Hence, domestic investors and those familiar with the market are at an advantage”, says Nemecek.

The two most active purchaser groups last year were open-ended special funds and residential property companies, which were responsible for approximately half of the transaction volume combined. A defining aspect of last year was the significantly greater activity on the part of the public sector. Municipalities and federal states, or their housing associations, acquired a total of around 22,700 apartments for approximately €3.2bn. Hence, their acquisition volume was more than two and a half times (+269%) the total for 2018.

Purchases of existing apartments accounted for approximately 84% of the investment volume. “In the public debate for more affordable housing, the expansion of municipal housing stocks is on the agenda in many locations,” says Matti Schenk, Senior Consultant Research Germany for Savills, adding: “While acquiring existing apartments is a faster way to achieve this objective, this does not help the supply shortage. The €2.7bn spent by the public sector on acquisitions of existing apartments in 2019 could have probably initiated the construction of more than 25,000 apartments on municipal sites. This would undoubtedly provide a greater contribution to relieving the strain in the housing markets.”

In terms of the structure of deals, the number of portfolio transactions decreased by a remarkable 45%. Although the number of development acquisitions remained constant, these transactions accounted for a significant proportion of the overall volume. Such deals, which included the acquisition of the Kleyerquartier in Frankfurt or Düsseldorf’s Glasmacherviertel, were responsible for approximately €4.7bn or around 27% of the transaction volume. “High-volume urban district developments are a particularly prominent theme in the German real estate market at present,” says Schenk, adding: “These larger residential districts with complementary uses are seeking to meet the requirements of modern urban living with short distances and a mix of uses. Hence, they are likely to enjoy long-term demand as residential locations and are consequently becoming increasingly sought-after by investors.”

The investment volume for student apartments and micro-apartments totalled approximately €940m, representing an increase of 60% compared with the previous year. “The number of students reached a new record level in the 2019 winter semester while the number of single-person households continues to rise. Consequently, demand for smaller apartments remains particularly strong in major cities and university cities, which is why the fundamental data for these niche segments of the apartment market remains positive,” says Schenk.
Savills expects the transaction volume for 2020 to exceed €15bn once again. “The deferral of interest rate hikes for the foreseeable future and the lack of relatively secure investment alternatives are likely to ensure that even more capital flows into residential property worldwide,” says Nemecek, adding: “Although the spiral of regulation continues to turn here in Germany, the country's large rental apartment market and correspondingly high liquidity are likely to ensure that it remains one of the most sought-after investment destinations. We also expect the public sector to remain highly active on the purchaser side.”

Key investment market indicators and further information:
“German Investment Market in Minutes”