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The German Real Estate Market and the Corona Pandemic: One Year On

More than a year has now passed since the outbreak of the Covid 19 pandemic and the start of the first lockdown in Germany. According to surveys by leading real estate services companies, the German investment market is largely defying the Corona crisis.

April 21, 2021

View on Leipzig - the attractive metropolis in eastern Germany

Market development

In 2020, 79.2 billion euros were invested in the real estate investment market in Germany, according to an analysis by the global real estate services provider CBRE. Compared to the record result of the previous year, this is a decline of only 5.5 percent. While EUR 59.2 billion of the investment volume went to commercial real estate (down 12 percent, 30 percent above the long-term average), the residential investment market for portfolios of 50 units or more reached EUR 20 billion (up 23 percent; 38 percent above the long-term average).

Asset classes

According to CBRE's findings, office investments will remain the most important asset class in 2020 with a share of 35 percent (EUR 27.6 billion), followed by residential with a share of 25 percent (EUR 20 billion), retail with 15 percent (EUR 12.3 billion). The share of logistics is 10 percent (EUR 7.6 billion).

In the first quarter of 2021, residential property continued to be in the fast lane and the transaction volume of institutional residential property investments was even ahead of the transaction volume of office property - the asset class with the highest investment volume. While office accounted for EUR 3.2 billion, residential reached EUR 5.7 billion. "Office properties will remain a leading asset class in the German real estate investment market. After all, with employees in most companies craving social interaction and companies wanting to reap the benefits of stationary and collaborative working as soon as possible, it has become clear that the return to offices across the board is just a matter of the success of the ongoing vaccination campaign," says Dr Jan Linsin, Head of Research at CBRE in Germany. BNP Paribas Real Estate comes to a similar assessment. The uncertainty that could be observed to some extent after the first lockdown in 2020 as to how a possible expansion of the home office share could affect the demand for office space has decreased noticeably.

Yields

According to CBRE's findings, prime yields remained mostly stable in the first quarter of 2021 compared to the previous quarter. For residential properties, this figure averaged 2.31 per cent across the top seven markets and 2.84 per cent for office properties - down five basis points year-on-year. The prime yield for logistics and industrial properties reached 3.40 per cent, a decline of 25 basis points. In the shopping centre segment, on the other hand, yields rose by 85 basis points over the last twelve months.

Outlook 2021

From an investor's point of view, office properties remain the benchmark, even in times of increased home office and remote working. Especially in these exceptional times, the trend is moving even more towards core and core-plus properties in established locations in the major office market centres as well as in the regional centres/B-locations with sustainable stable values. In particular, long-term leases with solid tenants, for example the public sector, are in demand away from the metropolises, according to CBRE's assessment. "The investment market looks set for a dynamic year in 2021, although the transaction volume will continue to be restricted by limited supply, particularly in the core and core-plus segment. For this reason, yield compression is likely to continue in the popular types of use," says Fabian Klein, Head of Investment at CBRE in Germany. BNP Paribas Real Estate also sees a concentration on core properties with long-term leases and tenants with good credit ratings, whereas value-add properties are currently attracting less interest from some buyer groups. According to BNP Paribas Real Estate, the situation in the retail sector is different. While food-anchored retail parks as well as specialist stores and supermarkets are at the top of many investors' shopping lists, there is still some uncertainty about the future role of shopping centres in the retail landscape. Jan Eckert, Head of Capital Markets JLL Germany, Austria, Switzerland, is somewhat more cautious: "The next few weeks will be decisive in determining whether the investment market takes a sustainable recovery path. In any case, a high level of activity in the awarding of sales mandates to real estate advisors is noticeable and also speaks for the fact that investors have not lost their fundamental confidence in the German market and that they believe in a revival of the letting markets in the further course of the year as a fundamental support."