• Transaction volume of €12.5bn (+96% compared with 1H 19)
• Below-average volume of €3.2bn in the second quarter
• 18,300 apartments sold in the second quarter – third lowest quarterly total in the last five years
• Outlook: rising demand from investors is likely to produce stable or even rising prices.

Properties in the German residential investment market (transactions for at least 50 apartments) changed hands for approximately €12.5bn in the first half of the year. This transaction volume is almost double the amount invested in the corresponding period last year. However, the acquisition of Adler Real Estate by Ado Properties in March was largely responsible for this very high volume.

Below-average volume in the second quarter – full year likely to be in line with 2019
Following the strongest opening quarter of all time, transaction activity in the second quarter fell significantly, which was doubtlessly due to the COVID-19 pandemic. Between April and the end of June, residential properties change hands for a total of around €3.2bn, which is significantly below the quarterly average volume over the last five years of approximately €4.1bn. Transaction activity in April and May in particular was very subdued. However, with a volume of more than €1.7bn, investment in June was already back above the five-year average of approximately €1.37bn. “Owing to the COVID-19 pandemic, the residential investment market has also temporarily witnessed an appreciable decline in activity,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, adding: “Overall, however, the sector is likely to exhibit significantly milder effects than other use types since the stable rental income and broad risk diversification across many tenants are qualities particularly sought-after by investors in times of crisis.” It appears likely, therefore, that last year's investment volume of €17.6bn, the second highest total in the last ten years, will also be matched this year.

Highest percentage of portfolio deals since 2016
Approximately 96,400 apartments changed hands in the first half year, with the second quarter only accounting for 18,300 of these. Thanks to a number of large portfolio sales and acquisitions, portfolios were responsible for around 75% of the transaction volume, which is the highest proportion since 2016. Besides the acquisition of Adler Real Estate, major transactions in the first half of the year included the purchase of two portfolios by LEG for a combined total of around €767m and the purchase of the City Life portfolio by Ares.

Prices to remain stable in the medium term thanks to strong fundamentals
The average price per residential unit transacted (12-month rolling) stood at approximately €140,000 at the end of June, which is 6% higher than in the previous quarter. This is primarily attributable to a significantly higher percentage of sales of development projects. “Since the fundamentals in the housing markets remain very positive from an owner's perspective, there is currently no noticeable reaction in terms of prices,” says Nemecek, adding: “However, should the deep recession result in a significant increase in unemployment over the coming quarters, many investors are likely to correct their rental growth expectations downwards.”

“Nevertheless, with the number of investors and the amount of capital seeking investment opportunities likely to increase and supply likely to remain limited, prices will probably remain stable even in this scenario,” says Nemecek.

Outlook: stability will ensure higher investor demand in the long term
On a long-term time horizon, Savills expects investor demand for residential property to increase significantly. “Reports showing that significantly less than 1% of apartment tenants have deferred rental payments illustrate the high stability of income from residential property,” says Matti Schenk, Associate Research Germany for Savills, adding: “Consequently, residential property is the most likely alternative to bonds from creditworthy issuers, particularly since bond yields are likely to tighten even more following the further expansion of bond purchases by the ECB.”

“It appears likely, therefore, that demand in the residential investment market will reach unprecedented levels going forward,” says Schenk.

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