Saturday, 15 March 2025
The gradual return of institutional investors is driving the market, while family offices are very active
More funds will be launched in 2025, mostly in the form of individual mandates and club deals
Cologne/Berlin, 20 November 2024 – The property transaction market has bottomed out. After three difficult years for the real estate industry, conditions will improve in 2025. This is mainly due to the significant drop in inflation and lower interest rates as a result of the ECB’s key interest rate cuts this year. However, a further boom phase in the property market is not to be expected for the time being. The asset classes in particular demand among investors are residential and logistics. By contrast, the office sector needs to be considered in a very differentiated way. These are the key findings of the online press conference ‘Outlook 2025: Interest rates down, inflation down – Is everything going to be okay again in the real estate investment market?’ with Michael R. Baumann, Head of Capital Markets at real estate consultancy Colliers in Germany , Jan Philipp Daun, Managing Director at GARBE Industrial Real Estate, Carsten Demmler, Managing Director at HIH Invest Real Estate, Camille Dufieux, Managing Director at INTREAL, and Gerhard Lehner, Head of Germany at Savills Investment Management.
Institutional investors remain cautious
All participants agree that the first signs of an increase in transaction activity are already visible, but that a significant increase is still a long time coming due to the wait-and-see attitude of many industry participants.
Carsten Demmler, Managing Director of HIH Invest Real Estate, commented: ‘The transaction market will pick up again in 2025, because there are selectively favourable purchase opportunities. Nevertheless, the year is likely to continue to be characterised by portfolio adjustments in terms of investment strategies. The real estate ratios in the portfolios will remain stable, but investors will implement greater sectoral diversification within the real estate allocation.’
‘There is a bit more movement in the market than there was six months ago,’ said Camille Dufieux, Managing Director of INTREAL. ’We are receiving more requests for new products. Our fund partners are dealing with transactions more intensively than they were doing as recently as mid-year. I see this as a sign that the transaction market is slowly recovering.’
Even though the fall in prices is currently creating some new opportunities, none of the participants expect a boom phase to follow.
Gerhard Lehner, Head of Germany at Savills Investment Management, comments: ‘Institutional investors are still too cautious for that. In the last two years, German institutional investors have primarily focused on managing their existing portfolios. By contrast, family offices are currently very active on the investment side. They are taking advantage of the market correction, identifying opportunities and investing mainly in smaller properties in an anti-cyclical manner. We are also seeing larger investments by this group of investors in the triple-digit millions.’
Jan Philipp Daun, Managing Director at GARBE Industrial Real Estate, adds: ‘Institutional investors pursuing core strategies have practically not invested at all in the past two years. This is slowly changing. We have had some interesting discussions with German investors in recent weeks and are optimistic that the investment market has bottomed out.’
Michael R. Baumann, Head of Capital Markets at real estate consultancy Colliers in Germany, adds: ‘There are increasing signs that the odd opportunistic player who hasn’t been seen on the market in the last ten to 15 years is returning.’
Investors have very different focuses: residential and logistics are “everybody’s darling”, office properties face challenges
The mood on the transaction market is brightening overall compared to the last three years, but the slightly positive forecasts do not apply to all asset classes. Experts expect rising investor demand in the residential and logistics asset classes. Office properties, on the other hand, need to be considered on a case-by-case basis.
Michael R. Baumann explains: ‘Residential will remain attractive for investors in the long term due to factors such as demographic change, a continued high rate of immigration and the low quality of new construction. The same applies to logistics. Contrary to many assumptions, office properties in top locations and with good tenant structures continue to be attractive. On the other hand, there are non-ESG-compliant properties in locations where pricing is not yet established. These properties will continue to struggle in the coming year.’
Carsten Demmler adds: ‘We are seeing a very clear “flight to quality”. The office asset class is far from dead. In fact, under the right conditions, it is offering very attractive entry opportunities, especially to anti-cyclical investors.’
Markets with economic growth are particularly attractive for investments
The participants see the best investment opportunities in Germany as being office properties in the top 7 locations. However, both the macro and micro-location must be right. By contrast, the residential asset class also works in the metropolitan regions a little further away from the larger cities.
Outside Germany, Jan Philipp Daun sees the greatest opportunities in growth regions: ‘Capital markets hardly differ from one another. The tenant market is often more challenging. That is why we are concentrating primarily on countries and regions with high economic growth in the logistics sector, especially northern Italy and the Czech Republic. Germany is still attractive, but it takes much longer to sign a lease here.’
Gerhard Lehner adds: ‘Ultimately, the fundamental data and the different speeds of market corrections across countries are crucial. Outside Germany, we have recently identified attractive investment opportunities for our investors in the residential sector in Scandinavia, Spain and the Netherlands, for example.’
2025 will see the launch of a number of new funds – individual mandates and club deals are leading the way
All participants agree that significantly more funds will be launched in the coming year. According to Jan Philipp Daun, these will come primarily from large platforms: ‘Smaller fund boutiques that are less specialised and have little track record will have a hard time.’
In this context, Gerhard Lehner also emphasises the importance of existing funds: ‘When investing in established funds, investors benefit from investing in an already broadly diversified and return-generating portfolio. This process can take a few years from the time of subscription for a newly launched fund. In addition, the fund manager of an existing fund already has an extensive track record.’
According to Camille Dufieux, individual mandates and club deals will dominate: ‘In the current year, pool funds and blind pools have not worked. Investors are busy cleaning up their own portfolios, and that is of course much more difficult when they are dependent on co-investors. In 2024, we saw significantly more individual mandates and club deals – at least among those investors large enough to launch their own special fund. This trend will continue in the coming year. One product that some market participants had high hopes for is the ELTIF 2.0. However, it currently plays a minor role in the real estate sector.’
Outlook for 2025: light at the end of the tunnel
Now that the real estate transaction market has picked up speed again in recent months, the majority of participants expect a further upturn in 2025. However, everyone agrees that the industry will not return to the figures seen during the low-interest phase for the time being and that another real estate boom is not on the cards.
Carsten Demmler is somewhat more cautious in his assessment of the coming year: ‘For us, 2025 will be another year of transition. We have to completely disassociate ourselves from the expectations of the years 2018 to 2021. We won’t see these figures again for a long time. The industry needs to recalibrate and find a new normal that will tend to be more in line with the level between 2012 and 2016.’
According to Gerhard Lehner, asset management will play a major role in the coming years: ‘Investors rightly expect us to now realise the promised returns on real estate investments. In this context, it is all the more important to maintain and systematically improve the sustainability and ESG compliance of existing properties.’
Camille Dufieux also sees a positive side to the developments of recent years: ‘A market shakeout has taken place. The wheat has been separated from the chaff – we will certainly see fewer transactions in the coming years than before 2021, but they will be of higher quality. We may still be in the tunnel, but at least we can see the light at the end.’
