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  • Residential property portfolio market in Germany: Strong Q4 boosts annual transaction volume to €15.7 billion in 2017

Residential property portfolio market in Germany: Strong Q4 boosts annual transaction volume to €15.7 billion in 2017

NAI apollo publishes year-end market report on residential property portfolio transactions in Germany for 2017:

  • Transaction volume of €15.7 billion represents second-highest sales volume in last 10 years after the record year of 2015
  • Strong fourth quarter contributes €5.1 billion to annual transaction volume
  • Listed property companies again strongest buyer group after 2015
  • Forward deals as well as the sale of new builds ensure that project developers are the most important and expansive seller group, and contribute substantially to further price increases
  • German players remain most active investors with modest gains
  • Outlook for 2018: First purchase and take-over declarations signal yet another year of high market activity is ahead

Frankfurt am Main, 09.01.2018 – According to the latest analysis from owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group, the transaction market for residential property portfolios ended 2017 on a high note. Around €5.1 billion was transacted in the final quarter, which also represented the strongest quarter of the year and helped boost the annual transaction volume to over €15.7 billion. In a 10-year comparison, 2017 is ranked second after the record year in 2015 when the transaction volume reached €23.9 billion. Last year's result also exceeded the 2016 figure by 12.9 %.

Around 131,800 units changed hands in 2017, which was fewer than in 2016 (143,400 units). "The fact that the monetary volume was nevertheless so much higher reflects the further increase in residential property prices for older buildings as well as for new builds and forward deals. In addition, the sale of units in project developments has also increased, and higher prices are generally achieved here," said Dr. Konrad Kanzler, Head of Market Research at the NAI apollo group.

Portfolios valued under €100 million account for largest share of transactions

As was also the case in 2016 (57.0 %), the lion's share of the transaction volume (52.9 %) in the past year was generated by sales worth below €100 million. In absolute terms, this corresponds to around €8.3 billion (2016: €7.9 billion). Large transactions above €100 million accounted for around €7.4 billion. Only the largest transaction of the year, the acquisition of a residential portfolio with 4,170 units and a commercial portion in Berlin by Deutsche Wohnen for around €655 million, exceeded the €500m threshold. "This illustrates the biggest difference between 2017 and 2015, which was dominated by several company takeovers, especially by Vonovia, as well as a high number of large portfolio purchases over €500 million. Such large deals were virtually absent from the market in 2017. Instead, smaller portfolio sales, partly as a result of portfolio adjustments, and particularly the trading of project developments characterised market activity," said Stefan Mergen, managing partner of NAI apollo valuation & research GmbH.

Shortage of marketable existing properties increases focus on project developments and drives up prices

Listed property companies and REITs remained the strongest buyer group at the end of the year, primarily due to the increased activity with large portfolios on the market. Around €4.3 billion is attributable to this group, representing a market share of 27.6 %, Open-ended funds and special funds, which were still in first place in 2016 with a volume of €3.5 billion, are now in second place with 23.7 %. This group increased its volume by almost €200 million in absolute terms compared to the previous year.

Project developers form the most important seller group. Residential building projects sold before completion alone accounted for 26.8 % of the transaction volume. This corresponds to an absolute volume of €4.2 billion and a year-on-year increase of 35.5 % (2016: €3.1 billion). Compared to 2015, the volume was 90.9 % higher (2015: €2.2 billion). "This illustrates the shortage of marketable existing properties. The strong investor interest has almost exhausted this supply in recent years and has led to a sharp rise in prices. As a further consequence of this development, building projects and new builds have gained considerable importance for the investment market," said Dr. Konrad Kanzler.

In addition to the general price growth, this has also led to a further increase in the average price. In 2017, this reached around €119,000 per unit, which amounts to a year-on-year increase of €22,000 per residential unit.

German investors continue to dominate the market

International investors returned to the German market in force during 2016 following several years of increasing abstinence, but 2017 was again characterised by a slight decline in foreign investor activity. German investors instead gained an additional €1.7 billion in absolute terms (to €11.4 billion) compared to the previous year, and a further 2.6 percentage point share (to 72.6 %). "This is not so much due to falling interest on the part of international investors — rather the opposite is to be assumed. Instead, they simply face a fierce competition, or, ultimately, national companies are often able to close the deal," said Stefan Mergen.

The outlook for 2018 is also positive against the backdrop of market activities in 2017. "The last few months demonstrate that a considerable transaction volume can be achieved even without large company purchases. In addition, a genuine mega-deal is already on the cards for 2018: Vonovia is planning to acquire Buwog with around 27,000 residential units in Germany," said Dr. Konrad Kanzler.

According to NAI apollo, the decreasing supply of marketable existing property stock and the high prices will have a limiting effect. At the same time, this will fan further interest in project developments. Ultimately, however, a combination of these two developments will lead to a further increase in residential investment prices.

"Demand will continue to be focused on the major German metropolitan areas and regions with high levels of immigration. However, secondary locations will continue to gain in importance. Likewise, the already high levels of investment activity in ‘B' and ‘C' locations will increase due to a lack of alternative options and the risk appetite on the part of investors," added Stefan Mergen. Against this background, NAI apollo forecasts a residential property portfolio transaction volume of around €15 billion for 2018, which would fall between the 2016 and 2017 results.

About NAI apollo

NAI apollo real estate is an owner-managed real estate consultancy. Its service range includes real estate brokerage, corporate finance services, project development, asset and property management, and valuation services. In addition to its headquarters in Frankfurt am Main, the company maintains offices in Munich and Stuttgart. NAI apollo real estate is also the exclusive German partner of NAI Global (www.naiglobal.com), the worldwide largest network of owner-operated providers of professional and discerning real estate consulting services. NAI Global has over 7,000 employees worldwide and manages properties with a total floor space of around 425 million sqm. The network advises on property transactions amounting to approximately US$20 billion per year (as of April 2017).


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