• Transaction volume of €15.8bn (+29% compared with Q1-Q3 19)
• Company acquisitions accounted for 40% of investment volume
• The public sector was responsible for only 4% of the acquisition volume
• Investment volume declined in the surrounding areas of the top-seven cities

The German residential property market has been almost unaffected by the COVID-19 pandemic during the year to date. This is not only evidenced by the German Property Federation (ZIA) autumn report, among other research, but is also reflected at first glance in the residential investment market (transactions for at least 50 apartments). Residential property changed hands for approximately €15.8bn in the first three quarters of the year. This represents an increase of 29% year on year as well as a 29% increase on the five-year average. The number of units transacted has totalled almost 125,000 during the year to date, which is 39% higher than in the corresponding period last year. However, this is largely attributable to the opening quarter and particularly the acquisition of Adler Real Estate by Ado Properties. The investment volume in the two “coronavirus quarters” of Q2 and Q3 totalled around €3.2bn per quarter, coming in around 24% and 27% below the quarterly average over the last five years respectively. “The fact that investment volume was below average in the last two quarter is not a reflection of investors’ reticence. Investor demand for residential property is undiminished and is even noticeably increasing. Supply remains the limiting factor,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany.

Company acquisitions are driving investment volume
Almost 40% of the transaction volume during the year to date is attributable to company acquisitions and particularly the acquisition of Adler Real Estate. This is the highest proportion since 2015 when company acquisitions such as those of Gagfah and Südewo, accounted for more than half of the transaction volume. “The continuing consolidation of residential property companies is creating increasingly dominant players in the apartment market. However, this is making potential acquisition candidates increasingly rare. To ensure long-term portfolio growth, many residential property companies are now turning to new build and acquiring developers and their pipelines,” says Nemecek.

The public sector is more reticent
With an acquisition volume of around €628m, municipal housing companies or the public sector have been noticeably less active than last year during the year to date. Public-sector acquisitions have accounted for just 4% of overall transaction volume during the first three quarters of the current year compared with around 13% in 2019.

In line with recent years, the majority of public-sector acquisitions have been in Berlin (around 76%). “The expansion of municipal apartment holdings remains on the agenda in many locations. Owing to the COVID-19 pandemic, however, the income of local authorities will decline, which is likely to reduce their financial scope to exercise pre-emptive rights for example,” says Matti Schenk, Associate Research Germany for Savills, adding: “In the medium term, the public sector is likely to be less active as a purchaser of residential property.”

Berlin remains in demand despite, or even because of, the rental cap
With a transaction volume of more than €2.6bn, Berlin was once again by far the strongest market for investment, not least owing to the purchase of around 3,900 apartments by Swedish investor Heimstaden Bostad. However, the transaction volume in the German capital has fallen by 42% year on year. “The rental cap in the Berlin market continues to cause uncertainty. Some investors are, therefore, steering clear of the city for the time being,” says Nemecek adding: “However, the lower competition among bidders gives opportunistic investors the chance to increase their market share.”
The federal states of Lower Saxony, North Rhine-Westphalia and Saxony have witnessed a high level of investment activity during the year to date. The generally transparent number of portfolio sales has been concentrated almost exclusively in these three federal states, where even some portfolios with a four-figure number of units have changed hands.

A boom in surrounding areas? Not thus far in the investment market
Even if the COVID-19 pandemic has not produced any noticeable impact on rents or prices to date, the pandemic could lead to some geographical shifts in the medium term. “The lockdown experience and the increase in working from home could lend additional momentum to the suburbanisation observed even before the pandemic,” says Schenk, adding: “Well-connected surrounding locations with corresponding infrastructure are likely to receive greater attention.” However, a glance at the transaction volume shows no indications of stronger engagement from investors during the year to date. The transaction volume for the surrounding regions of the top-seven cities totalled €547m during the first three quarters of the current year, which is 18% lower than in the corresponding period last year.

Outlook: second highest volume for the last ten years
“The fact that the German apartment market has come through the pandemic almost unscathed to date underlines the status of residential property as a safe haven, particularly in Germany,” says Nemecek, adding: “Since demand for low-risk but stable investment opportunities is higher than almost ever, there is likely to be even more capital seeking product in the market going forward.” Subject to further significant restrictions of public life, it is therefore likely that activity in the residential investment market could increase noticeably further. It is highly likely that last year’s transaction volume of €17.2bn will be significantly exceeded this year. This would mean the second highest investment volume of all time in the crisis year of 2020.

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