Investment Market Overview Q1 2026

Inflation has returned, bringing with it the "specter" haunting real estate investors: rising financing costs. All indicators point to eurozone and German inflation rates climbing from 1.9 percent to above 2.5 percent in March. The conflict in Iran and the broader Middle East is progressively impacting consumer living costs and leaving its mark on balance sheets, particularly among energy-intensive industrial enterprises. Attention now turns to the European Central Bank (ECB) and its response, especially given criticism of its allegedly hesitant stance during the previous price surge following the Ukraine war. In March, the ECB held rates steady; the next rate decision is scheduled for late April. Credit and bond markets have already begun reacting: swap rates and government bond yields have risen substantially.

Despite these persistent geopolitical risks and elevated financing costs, Germany's real estate investment market presented a moderately positive picture in Q1 2026. Nationwide transaction volume reached 8.9 billion euros at year-start, twelve percent above the prior-year figure. Market sentiment in Germany's property investment sector developed very positively in Q4 2025 and early 2026. Several factors explain this: first, few market participants still speculate on further rate declines; second, debt capital availability has continued increasing.

However, the current escalating geopolitical situation, coupled with the energy crisis and rising rate expectations, has dampened this momentum. The consequences are reverberating throughout the global economy, with their full magnitude still unclear. Nevertheless, deals yielding significantly above debt capital costs will remain viable even if rates rise moderately. The question becomes one of price rather than transaction feasibility. In the near term, though, some market participants have adopted a wait-and-see approach in recent weeks, seeking to avoid perceived risks.

The current economic landscape appears to parallel 2022 in some respects. However, one critical difference exists: inflation currently hovers around two percent, contrasting with 2022 when inflation had already reached four percent before energy price escalation began. Additional differences include currently stronger supply chain resilience—freight rates have risen only moderately thus far—and generally higher interest rate levels. Paradoxically, the weakening economy and subdued consumption may moderate price increases. Based on these factors, we anticipate two modest ECB rate increases this year. Ultimately, much depends on hopes that the conflict duration remains limited to weeks rather than months, and that second-round effects such as higher wage settlements or cost pass-throughs materialize moderately or not at all.

This underscores the importance of measured, objective assessment of market fundamentals, even if this leads to transaction delays or strategic reorientations for some property deals. What we can confirm from Q1 is that transactions already in progress continue advancing, with minimal evidence that investors are abandoning their acquisition plans entirely.

€8.9 bn

volume of transactions in Q1 2026

+12 %

compared to Q1 2025

The investment market is developing heterogeneously. The twelve percent increase in transaction volume is driven particularly by single-asset transactions, where volume rose nearly 24 percent to 6.7 billion euros, while portfolio transactions continue lacking momentum. Portfolio volume declined twelve percent to 2.2 billion euros. Notably, single-asset growth did not occur exclusively in the seven largest metropolitan areas. Transaction volume there stagnated at 3.1 billion euros, registering barely two percent growth year-over-year. Investment volume outside the seven major markets increased more substantially (plus 19 percent), raising this segment's share of total volume to nearly 65 percent.

Nevertheless, a closer examination of the seven major markets proves instructive. Regional dynamics show marked differences. While Berlin suffered a 43 percent decline to 780 million euros and Stuttgart remained unchanged at 100 million euros, the other five markets demonstrated consistently positive performance. Cologne with a significant 122 percent increase and Frankfurt with 87 percent growth are setting expansion impulses, though Frankfurt's volume remains modest at 280 million euros. The banking hub continues lacking its characteristic office deals.

German investment activity remains dominated by small and mid-sized deal sizes; transactions exceeding 100 million euros, despite positive development, remain exceptional. Q1 registered sixteen transactions above 100 million euros, seven more than the prior-year period. The quarter's largest transaction was Aedifica's acquisition of 80 percent of Cofinimmo's stake. The proportional value of the nursing home portfolio comprising 58 German properties totaled approximately 750 million euros.

As in previous quarters, the Living asset class maintains its position as the strongest category in early 2026 with undiminished demand. Total share exceeds 2.5 billion euros, representing 28 percent. Office properties rank second at nearly 1.7 billion euros, followed by retail and mixed-use properties at approximately 1.4 billion euros each. The retail sector's recovery continues, with grocery-anchored properties particularly sought-after and proving resilient. The office market remains challenging, now complicated by discussions surrounding workplace dynamics in the AI era. Logistics properties follow this group with a twelve percent share. Current transaction volume of just under 1.1 billion euros—matching the prior year—represents a weak year-start. The logistics sector, particularly sensitive to geopolitical and economic events, reacts acutely to uncertainties affecting supply chains. Simultaneously, adequate products are scarce, especially in the core segment.

The buyer spectrum in Q1 was relatively broad. Asset and fund managers form the traditionally largest investor group, accounting for 32 percent of transaction volume in Q1. Beyond these third-party investors, public entities rank second (12 percent), playing an important role with varying investment motivations by asset class. In the office segment, they frequently act as owner-occupiers, while in residential, municipal housing companies pursue housing policy objectives as buyers. The investor spectrum is complemented by private capital (11 percent), which remains actively engaged and often requires less debt capital thanks to higher equity ratios. Open-ended retail funds showed limited Q1 activity, confronting outflows from private investors. This group will likely appear more frequently as sellers than buyers throughout the year, as in the previous year.

Number of portfolios

Volume each ≥ €100 mn

20

Q1 2025

22

Q1 2026

Yield development in Germany's property investment market demonstrated cross-asset-class stability in Q1 2026, which may appear surprising at first glance. Closer examination, however, reveals that yields reflect the previously described pattern of transactions initiated in 2025 now reaching completion. Nevertheless, changes in interest rate levels throughout the year could shift the risk-return relationship, presenting significant implications for investors.

Aggregate net initial yields for prime office properties in the seven major markets remained at 4.31 percent in Q1, matching year-end 2025 levels. In retail, prime yields for high-street retail, shopping centers, and retail parks also remained stable. Logistics and industrial property prime yields likewise held steady at 4.56 percent, reflecting growing market consensus between sellers and buyers.

Yet while property yields stagnated, bond markets underwent dramatic development: ten-year German government bond yields rose temporarily above 3.0 percent in Q1 2026, the highest level since 2011. This increase was driven by three factors: inflation concerns following the Iran conflict, elevated government spending and interest rate expectations.

Consequently, the risk premium for office property investment versus German government bonds compressed to approximately 146 basis points, down from 210 basis points at end-2024 and 159 basis points at end-2025. From a theoretical perspective, compressed risk premiums could drive yield expansion in real estate—translating to declining prices. However, specific market mechanisms delay or prevent such adjustment—notably, rents are inflation-indexed unlike most government bonds, something investors are beginning to factor in amid higher inflation expectations.

Many owners continue pursuing a "wait-and-see" strategy, avoiding sales below book value. This behavior is supported by partially increased capital values where rental income growth has been achieved. Additionally, German banks have thus far sold only isolated larger NPL portfolios, as lower loan-to-value ratios reduce disposal pressure compared to the financial crisis. Finally, substantial capital exists based on current market values, particularly from international investors. The longer Middle East uncertainties persist and the US is no longer viewed as a stable anchor, capital flows may redirect toward Europe and Germany.

For investors, this necessitates continued cautious and prudent action, rigorous assessment of cash flow sustainability, focus on high-quality defensive properties with long-term lease contracts, or acquisition of existing properties with renovation and value-add potential. Forecasting full-year 2026 currently resembles gazing into a crystal ball, with geopolitical disruptions' impacts not yet measurable, particularly medium-term consequences for interest rate trajectory. Based on current conditions and properties and processes in the market, we project full-year results of 35 billion to 40 billion euros.

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