NAI Apollo: German Residential Portfolio Transaction Market in Mid-2024 Shows Signs of Recovery
Frankfurt am Main, July 8, 2024
At €2.4 billion, the transaction market for residential portfolios in Germany recorded a significant increase in market activity in the second quarter of 2024 compared to the start of the year (Q1 2024: around €790 million). There was also an increase compared to the previous year, in which an average quarterly result of EUR 1.6 billion was achieved. According to an analysis by NAI apollo, partner of NAI Partners Germany, residential portfolios (30 residential units or more) have thus traded for around €3.2 billion in 2024 to date, almost reaching the previous year's level (H1 2023: €3.3 billion). „However, a longer-term comparison brings with it a certain disillusionment. The transaction volume achieved in the first six months of 2024 is the weakest result since 2011. This means that, among other things, the half-year average of EUR 8.3 billion for the past five years has been significantly undercut at 61.6%. In addition to the poor start to the year, this is primarily due to the record results of previous years,“ says Dr. Konrad Kanzler, Head of Research at NAI apollo.
„Compared to other real estate classes, the German residential market remains more resilient. Activity at the portfolio level is supported by high user demand for housing that cannot currently be met. Large German cities with continuous job growth, as well as commuter centers like university towns, have in particular seen renewed investor interest due to the sustained rent increase. The rise in traded units to 19,100, coupled with an increase in recorded transactions of almost 40 percent, also indicates an intensification of market dynamics,“ says Dr. Marcel Crommen, Managing Director of NAI apollo.
„Price reductions on the sale of properties in need of restructuring from the Value-Add and Opportunistic asset classes had a dampening effect on transaction volume. The cautious interest rate turnaround generally only allows well-capitalized investors and players without refinancing pressure to buy actively. Overall, securing liquidity and portfolio optimization are the focus of investment strategies,“ adds Stefan Mergen, Managing Partner of apollo valuation & research GmbH.
Largest market share remains in the „100 to 500 million Euro“ segment“
When differentiating by size classes, it is primarily the small-volume segments that show an increase in transaction activities compared to the previous year. Overall, a volume of EUR 789 million was registered in clusters below the EUR 25 million mark in the first half of 2024, an increase of 60.6 percent compared to H1 2023. The increase in the megadeal category above the EUR 500 million mark (+24.6 percent) is also noteworthy. This is exclusively driven by the acquisition of a Vonovia portfolio with around 4,500 apartments (incl. 40 hectares of land) for around EUR 700 million in Berlin, which was led by the municipal housing company Howoge.
„Despite significant revenue losses, the largest market share, at 27.9 percent, still belongs to the ‘100 - ‘Under 500 million euros.“ In total, real estate transactions in this price segment amounted to 894 million euros, which represents a decrease of more than 40 percent compared to H1 2023," said Kanzler.
The public sector is the strongest buyer group, project developers & builders, as well as real estate stock corporations & REITs dominate the seller side
„In terms of investor types, public sector entities have stood out since the beginning of the year. Municipal companies are currently taking advantage of opportunities to expand their portfolios, particularly in the subsidized segment, with a view to ensuring housing supply. Overall, the public sector has acquired residential portfolios worth €1.3 billion (market share: 41.2 percent), representing growth of €1 billion compared to H1 2023. The group of asset and fund managers ranks second on the buy-side with €929 million (H1 2023: €1.3 billion).“.
„On the seller side, it is evident that selling pressure continues in many areas. The need to secure liquidity has led, among other things, to project developers and listed companies, in particular, playing a market-shaping role on the sell-side with sales volumes of approximately 1.4 billion and 1.3 billion euros respectively,“ Mergen continued. Compared to the previous year, the group of project developers and construction companies was able to increase its sales volume by 70.4 percent („Real estate stock corporations / REITs“: +19.4 percent).
Investment volume of project developments with a growth of 17.5 percent
„The trading of project developments, which declined significantly last year due to high construction and financing costs, is showing a slight recovery this year. In absolute terms, revenue from forward deals increased by 17.5 percent compared to the previous year, reaching 880 million euros. This corresponds to a market share of 27.4 percent. German investors, and particularly public entities, are acting as important demanders for new build residential properties that meet sustainability requirements,“ explains Crommen.
Germans determine the market, foreign investors generate 33 percent less revenue.
The pronounced market dominance of domestic investors remains in place at the mid-year mark of 2024. With a transaction volume of approximately EUR 2.5 billion, German investors are recording an increase of 12.6 percent compared to the same period last year. Their market share (77.9 percent, or +10.1 percentage points compared to H1 2023) has also grown. Consequently, the share of foreign investors has decreased to 22.1 percent. „This corresponds to a decrease in the absolute transaction volume from around EUR 1.1 billion to now approximately EUR 710 million. The largest acquisition in this segment remains the purchase of the ‚Greenpark‘ residential project in Berlin by Greystar in the first quarter,“ stated Kanzler.
Further market recovery expected at a low level
In the coming months, the transaction market for residential portfolios will be characterized by the interplay of market recovery trends and continued market uncertainty. „On the one hand, the persistently high level of interest rates continues to pose a major challenge, while on the other hand the increasing shortage of housing, steady rental growth and growing demand for ESG-compliant investments are having a positive effect,“ says Mergen. There are increasing signs that pricing is coming to an end, although there are still differences in the convergence process between the various risk classes. „For ESG-compliant existing properties and new developments in Germany's top regions, price stabilization already seems to be a reality in many areas. In other segments, however, especially in structurally weak areas, there is still a need for adjustment in many cases. At the same time, the pressure to sell remains high in many places due to refinancing and to secure liquidity. Listed real estate companies in particular are planning further portfolio adjustments, which will lead to an increase in supply,“ explains Crommen.
For the coming months, NAI Apollo expects a further slow recovery of the market following the increase in transaction activity in the second quarter of 2024. The stabilizing framework conditions will make the German residential portfolio market more interesting again for a broader range of investor groups. This will also lead to an increase in larger transactions. Although the transaction result for the entire year 2024 will be significantly below the long-term average (2019-2023: around EUR 22.1 billion), the previous year's result of EUR 6.2 billion should be clearly surpassed.