According to Savills, what happens next in the German residential investment market will depend materially on the pace of price adjustments and the actions of politicians.

Marco Högl, Director and Head of Residential Capital Markets for Savills Germany, predicts: “We expect pricing for new-build product to bottom out quite quickly, which will facilitate transactions and is likely to have a positive impact on transaction volumes. When it comes to existing stock, the decisive factor will be whether owners in the value-add sector are willing to accept significant price reductions.

“However, in order for more capital to flow into existing property again, and particularly into refurbishments, politicians must provide greater planning certainty. Extensive subsidy programmes or special capital allowances would be one way to allay investors’ fears of a wave of refurbishment.”

20 residential transactions (of at least 50 apartments) worth approximately €1.2bn were completed in Germany during the first quarter of 2023, according to the international real estate advisor. This is the lowest quarterly volume since the beginning of 2011. By way of comparison, the average number of sales per quarter over the last ten years was 60.

Karsten Nemecek, Managing Director of Corporate Finance – Valuation for Savills Germany, says: “For investors using debt, the current asking prices in the residential investment market are often not realistic. This explains their highly selective actions, although many continue to seek properties for their portfolios. Equity investors can act more offensively in this environment and, in view of the temporarily depleted field of bidders, have a relatively large number of options.”

For investors seeking continuous and almost default-proof rents, German residential property is a top choice according to Savills. While housing remains in consistently high demand, supply will remain scarce for years.

Matti Schenk, Associate Director of Research for Savills Germany says: “The latest statistics show a noticeable decline in building permits and the cancellation of many residential developments. Consequently, new build figures should also remain low over the coming years. In most markets, therefore, owners of residential property can rely on stable income streams.

“Compared with many commercial property sectors, residential promises more stability, meaning that long-term investors in particular are likely to continue to opt for such assets.”

Find out more: Market in Minutes: Residential Market Germany