Residential property: Transaction market carries previous year’s momentum into the first quarter of 2025

Major transactions drive transaction volume in the first quarter

The investment market for residential property in Germany generated a transaction volume of € 2.4 billion in the first quarter of 2025 which represents the best start to a year since 2022. The number of apartments traded stood at almost 19,800, a high level by comparison with previous quarters and significantly above the average since 2023.

Large ticket transactions remained a dominant element of the market, although the share of such transactions was higher in previous quarters. For example, deals worth more than € 100 million still accounted for 58% of total sales revenues. The largest transactions were ZBI’s sales to In-West Immobilien GmbH and the sale of Adler’s Cosmopolitan portfolio to One Investment Management/Orange Capital. The purchase of 396 residential units in Berlin-Spandau by Wohnungsgenossenschaft Neukölln e.G. was a further notable driver.

The proportion of investments in A markets stood at approximately 18%, totalling around € 430 million. Forward deals or investments in projects under construction accounted for almost € 340 million, and together with new constructions as from 2023, these too contributed 20% of the transaction volume. This was offset by a figure of € 1,250 million attributable to the value-add profile; i.e. around 52%.

Strong market fundamentals support outlook for residential properties

Over the medium term, the German residential market will continue to be dominated by a pronounced mismatch between supply and demand. Vacancy rates are low in very many cities, and the majority of these markets continue to see declining vacancies. Due to the low project development pipeline with consistently low permits, this trend will continue over the medium term.

This will lead to rising rents across the board. The large metropolises might see less dynamic growth in rents this year – rents here are already decidedly high. It is more likely that affordable and at the same time attractive second and third tier towns will experience more dynamic population growth and more rapid rises in rental levels.

While the rental market therefore continues to present a positive picture for investors and owners, recent developments on the bond and finance markets represent a challenge. Following Friedrich Merz’ announcement of special funds to boost infrastructure and defence spending, the yield on 10-year German government bonds jumped 2.9% overnight – their highest level since October 2023 and therefore just below a 15-year high. This trend is also reflected in higher lending costs in the financing environment. In spite of the expectation that the ECB will cut interest rates further, we are assuming that the financing market will remain volatile and that this will impact on investment activity.

Nevertheless, we expect investment momentum to be maintained in 2025 and a transaction volume of over € 10 billion to be achieved this year. The combination of rising rents and attractive entry prices will continue to stimulate lively investment interest.

Methodology

Our analysis of the transaction volume includes all properties used for residential purposes which have at least 20 residential units and in which commercial use only plays a minor role. In addition, minority interests and pure M&A transactions or entity deals are not taken into account. Special residential forms such as student accommodation or retirement homes are also not taken into consideration.