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Current residential real estate market sentiment and changed investment strategies

Verena Bauer • 25/09/2023

Regarding the past twelve months, residential investors in Germany paint a sombre picture: More than half have not achieved their sale and acquisition targets and transaction processes are protracted. These are two of the results of a survey conducted by the international real estate consultancy firm Cushman & Wakefield (C&W) in June of this year among around 140 asset and investment managers, property developers, portfolio holders, family offices and banks. In addition, further declines in purchase prices are expected and, unlike two years ago, there is noticeable reticence regarding forward deals. 

Jan-Bastian Knod, Head of Residential Investment Germany, explains: “Comparison of the survey results from 2021 and 2023 documents that acquisition and sales targets are now being achieved much more infrequently. But at the same time, almost half of those surveyed, some 48 percent, are on course to expand and are actively seeking new investment opportunities in the housing market. A recovery of the currently falling purchase prices is expected in the medium term.”

Falling prices even for new-builds

The investors surveyed are almost unanimous in their expectation that property purchase prices will fall by 2.5 per cent or more over the next twelve months, both in the top-7 cities and in secondary locations. This is true regardless of whether the properties are new-build or existing stock. For properties with low construction and location quality, they also assume purchase price reductions for new-builds, whereby they attribute the greatest value stability to new buildings in top-7 locations.

Strongest rental price growth in the top-7 cities

At the same time, a significant increase in rental prices is expected. Especially for new-build apartments in the top-7 cities, more than 70 percent of respondents forecast a significant increase of 2.5 percent or more. They also expect an increase for apartments in existing stock in the top-7 cities and in secondary locations, but to a lesser extent.

Investment focus on major cities

Across all residential segments, the focus of investors is on acquisitions in large cities with more than 500,000 inhabitants. Some are also involved in special forms of housing such as micro-living and senior living. In the senior living asset class, location is less relevant: cities of 100,000 to 250,000 inhabitants attract a similar level of interest as larger cities. In general, however, investors and property developers are less attracted as size decreases. 

Cooperations and partnerships gain in importance

A surprisingly high 82 percent of investors agree that cooperations and partnerships between various market players will gain in importance over the next twelve months. In addition, almost 64 percent of the respondents expect an increase in corporate acquisitions, despite the currently more difficult financing environment. As a rule, such acquisitions will tend not to be strategic growth purchases, but rather acquisitions of distressed companies.

Regulatory and ESG requirements shape the market

Stricter political and legal regulations, including rising ESG requirements, are having a significant impact on the housing market. 94 percent of respondents agree on this point. Around 87 percent of respondents consider ESG criteria in their own investment decisions. Compared to the 2021 survey, this topic has gained even more urgency.

Utilisation of debt capital

Financing practices over the past year are broad and reveal a variety of strategies: About 38 per cent of respondents leveraged financing at 60 per cent or more. 34 percent of investors finance projects with around 50 percent of debt capital. Just under 16 percent acquire real estate purely from equity or with a low level of debt capital of less than 20 percent.

Download the entire survey results here.

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verena bauer
Verena Bauer

Head of Business Development Services, Germany • 60311 Frankfurt am Main

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