Germany’s residential market showing signs of recovery in Q2

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Germany’s residential market is showing signs of recovery, according to new research by Lübke Kelber, an independent real estate consultancy. In Q2 this year, residential transaction volumes increased to €1.8 billion, the strongest performance since Q1 2023, which was largely driven by big ticket deals.

The figure is still short of the historic 10-year quarterly average of €3.5 billion, but it shows an uptick in activity. Over 10,000 resi units were traded in Q2, which marks the highest volume since the beginning of 2022. Transaction volumes reached €2.9 billion in H1.

Transactions with a volume of over €100 million accounted for 51% of the total volume. The purchase of 4,500 residential units and 40 hectares of land (including 6 hectares of buildable land) the key deal of Q2. Vonovia sold the portfolio to Howoge and Berlinova for €700 million.

Foreign private equity players are currently targeting the German real estate market, but more institutional real estate funds are also increasingly active as “the investment market is still very much a buyer’s market”, the report states.

Further evidence of the demand for German real estate is the takeover of the insolvent developer Interboden by the Scottish alternative asset manager Arrow Global, which in turn belongs to the private equity investor TDR Capital. Anglo-Saxon and increasingly also Asian capital remain active players and observers of the German market – especially in the field of non-traditional transactions.

More than 25 new real estate funds with a “Resi Germany” investment focus have been initiated or announced during the last 18 months, compared to the ten funds active in 2022 and only nine vehicles in 2021. A large proportion of the new funds were initiated by German managers, which shows there is a lot of domestic demand for residential real estate, according to the research.

Lübke Kelber states that prices have bottomed out: “we expect that the market correction in the investment market is largely complete”, the report says. “Devaluations are still possible for existing portfolios of listed real estate companies and, in particular, real estate funds, because in some cases property valuations do not yet correspond to the price currently achievable on the market. However, we are in an environment of rising rents, which should have a positive effect on performance in the medium term.”

The rental market remains very tight and the new construction pipeline will remain thin for the foreseeable future, so it is likely that there will be further upwards pressure on rents this year and next, both in the top markets and in second-tier cities.