NAI Apollo: Residential portfolio transaction market at a new low at the start of 2024
Frankfurt am Main, April 8, 2024
No turnaround was evident in the German transaction market for residential portfolios at the start of 2024. According to an analysis by NAI apollo, a partner of NAI Partners Germany, around 790 million euros were transacted in the past three months, which represents the lowest result in 14 years. Compared to the previous year's quarter (Q1 2023: 2 billion euros), the transaction volume decreased by around 60 percent. The quarterly average of the very weak previous year (1.6 billion euros) was undercut by half due to the strong restraint of market participants.
„Investment sentiment on the German residential portfolio market remains subdued at the start of 2024. The ongoing mix of slightly lower but still high financing costs, strict lending conditions and an ever-decreasing economic outlook means that market participants remain cautious. Only the public sector has made a positive impression with increased purchasing activities. Overall, the focus of investment strategies is on securing liquidity and strengthening portfolio resilience. The pricing phase has not yet been completed across the board, which is why some sales processes were aborted or delayed at the beginning of the year,“ says Dr. Marcel Crommen, Managing Director of NAI apollo. „In total, around 4,300 units were traded in the past three months, which represents a decline of around 44% compared to the previous year. Larger transactions remained the exception. Market activity was higher in the small-volume segment. On the buyer side, it was still mainly investors with a strong equity base that were active,“ said Dr. Konrad Kanzler, Head of Research at NAI apollo, summarizing the key findings.
Smaller sales with an increase, largest market share in the „100 - <500 million euros“
The number of transactions at the beginning of 2024 has decreased by 8.8 percent compared to the previous year. Small deals up to 25 million Euros show an increase (80 percent of all closures). As a result, the traded volume in these categories has also increased (+30.2 percent to over 250 million Euros), and their market share of investment volume has risen from 9.9 percent (Q1 2023) to 32.3 percent (Q1 2024). However, the largest market share of around 45 percent still falls to the „100 - ‘€500 million. Overall, however, only around €360 million flowed into this price segment, which represents a decrease of 74 percent compared to Q1 2023. Revenue losses of 53 and 63 percent, respectively, were also recorded in the price classes ‘€25 - <€50 million‘ and ‘€50 - <€100 million‘, which now total around €180 million. No transaction took place in the megadeals segment above the €500 million mark, analogous to the previous year's quarter,“ said Kanzler.
Market share of project developments grows to over 59 percent
The largest transaction of the current year is Greystar Real Estate Partners" acquisition of the "Greenpark„ residential project in Berlin from Bauwens, with an expected 758 residential units to be completed in 2026. Further, and also larger, forward deals, such as the purchase of over 440 units by WBM Wohnungsbaugesellschaft Berlin-Mitte from Cosimo Investment Group, have led to the market share of project developments increasing by 27.3 percentage points to 59.1 percent compared to the previous year. “Foreign capital and purchases by public entities have made important contributions to this. However, in absolute terms, there have also been declines in the new construction segment. For example, the traded volume has decreased from around EUR 630 million in the previous year's quarter to around EUR 470 million," explains Stefan Mergen, Managing Partner of apollo valuation & research GmbH.
Public sector stands out with high market activity, project developers & builders strongest sellers
When broken down by investor type, the asset managers & fund managers group took first place with 30.1%, as in Q1 2023. However, a purchase volume of almost €240 million represents a significant decrease compared to the previous year (Q1 2023: €680 million). The public sector, on the other hand, has made significant gains and is currently using the available opportunities to expand its portfolios. They have acquired residential portfolios worth around €220 million, which corresponds to growth of around 140% and puts them in second place in the investor ranking.
On the seller side, the project developers & construction companies sector generated by far the highest sales revenue at the beginning of the year with around 520 million euros (Q1 2023: 640 million euros). Trailing far behind are the listed real estate companies. „The real estate companies that stood out with large acquisitions in the pre-crisis years are among the most important sellers, as in previous quarters. However, while they reported sales of over 460 million euros in the first three months of 2023, these were reduced to only around 80 million euros in 2024,“ says Kanzler. „However, the notion that the sales ambitions of listed companies are slowly coming to an end is a fallacy. Further disposals of both smaller packages and large-volume portfolios are in preparation and are expected to come onto the market in the coming months,“ adds Mergen.
Germans dominate the market, foreign investors expand market share
With a transaction volume of around 540 million euros, German investors recorded a significant decrease of 65.8 percent compared to the previous year's quarter. Their majority share in market activity (69 percent or -11.7 percentage points compared to Q1 2023) has decreased. Correspondingly, the share of foreign investors increased from 19.3 percent to 31 percent, with Greystar's forward deal in Berlin contributing significantly to this. However, the absolute volume for international investors also decreased, falling by 35.8 percent to approximately 240 million euros.
Slow market recovery possible later in the year
„It is to be expected that the investment climate on the German residential portfolio market will slowly brighten over the course of the year. Greater security as a result of the anticipated stabilization of interest rates, an end to the price discovery phase and growing investment and sales pressure will contribute to an increase in transaction activity. Distress sales as a result of insolvencies or pending refinancing, among other things, will increase. There is also potential for more market momentum as a result of portfolio streamlining by large portfolio holders with distressed assets or the entry of international investors with opportunistic investment profiles,“ says Crommen. „However, we do not expect market activity to intensify until later in the year, when a stronger recovery becomes more likely in terms of overall economic development. The fundamentals for the residential segment remain promising, particularly in the major cities and growth regions. The low housing supply ratio and the increasing housing shortage are supporting the market. And the continuous rise in rents is creating opportunities for value appreciation,“ adds Mergen.