The German multifamily transaction market reached a total volume of €12.3bn in 2022, with 67,000 apartments transacted (transactions for at least 50 apartments), according to Savills. This equates to less than a quarter of the record transaction volume from 2021 (€52.1bn). Even if the Deutsche Wohnen acquisition from autumn 2021 is excluded, this would still represent a 53% decrease in investment.

Karsten Nemecek, Managing Director of Corporate Finance – Valuation for Savills Germany says: “Entering the multifamily market is currently challenging from an investor's perspective. The fact that vacancy risk has fallen further in rental markets, while rents can be expected to rise further, is playing into owners’ hands. Those who do not need to sell are unlikely to be willing to do so at the present time.”

However, some living sub-sectors proved relatively robust. The transaction volume for student accommodation and micro-apartments totalled around €1.2bn, 16% above the five-year average. This is the second highest volume on record.

Matti Schenk, Associate, Research at Savills Germany, says: “Student accommodation and micro-apartments have continued to attract strong occupier demand in Germany as the pandemic has come to an end. In view of the increased pressure in the rental apartment markets, these flexible and obstacle-free rental concepts are likely to remain in high demand going forward. Since the above-average fluctuation also allows owners to make regular rent adjustments, in view of the high rate of inflation, we expect strong interest from investors.”

The reticence of many market participants is creating opportunities for investors who are prepared to make acquisitions now. Open-ended special funds and other funds and asset managers accounted for 29% and 18% of investment volumes respectively last year, making these the two most active purchaser groups. While almost all investor groups reduced their acquisition volume, private equity funds and open-ended retail funds have invested the most since the beginning of the last market cycle in 2009.

Nemecek says: “Open-ended residential property retail funds are still under high pressure to invest and are among the equity-rich players who are taking advantage of the current thinned-out field of bidders to expand their portfolios. Private equity investors have been waiting in the wings since the beginning of the interest rate hikes, hoping for significant price reductions and a favourable re-entry into the German residential property market. Their increased acquisition volume demonstrates that they have already been successful with certain portfolios.”

Savills believes the outlook has improved compared to last year. Demand for rental apartments has noticeably increased for various reasons, including strong population growth and because many households for whom home ownership is now unaffordable must continue to rent. At the same time, the number of development completions are likely to fall significantly.

Schenk says: “Over the coming years, we expect that the already very low vacancy rates in most rental apartment markets will fall further while rents will increase.”

“As we have already seen in other European countries, regulatory pressure on owners of buildings in need of refurbishment could also grow in Germany since the property sector has fallen short of the announced climate objectives to date. Regulations requiring further upgrades no longer affect only income but also costs, representing a completely different type of risk for investors. This risk can only be eliminated with the acquisition of new build or existing properties that have undergone energy-efficient refurbishments. We expect risk-averse investors to engage exclusively with this section of the market, which will restrict their investment spectrum in the apartment market, particularly in view of the current decline in new-build activity.”

Find out more: Market in Minutes: Residential Market Germany