Investment Market Overview - Q2 2025

After a promising start to the year, momentum in the German real estate investment market slowed again in the second quarter of 2025. With approximately seven billion euros in transaction volume from April to June, the half-year total amounts to nearly 15.3 billion euros, almost at the same level as the first half of 2024. While turbulence in financial markets due to the Israel/USA-Iran conflict has been absent or only briefly manifested in rising oil prices, the cautious investment market shows that uncertainty and volatility are not good ingredients for real estate transactions.

The impression remains that each day could bring new disruptions. This causes the mood in the real estate industry to be significantly more pessimistic than actual market conditions.
At the same time, there's good economic news: inflation is currently no longer an issue – at least as long as the Middle East conflict doesn't escalate further. Economists estimate that closing the Strait of Hormuz could increase inflation in the eurozone by 80 basis points. Though considered unlikely, this risk highlights the need to carefully monitor geopolitical developments. Investors remain cautious, as the trade conflict with the US continues. If no agreement with the EU is reached when the 90-day deadline expires on July 9th, potentially higher tariffs and rising oil prices could enormously impact inflation trends and interest rate developments.

At least the latter shows stimulating effects regarding real estate (re)financing, especially as macroeconomic conditions improved somewhat during the second quarter.
From the current perspective, the European Central Bank (ECB) will likely pause interest rates in July and moderately lower them again later in the year. Financiers and banks are showing a somewhat more positive sentiment, signaling increased willingness to invest in real estate projects. Besides interest rate developments, confidence in economic growth has increased following the formation of the German government and its economic stimulus program. Additionally, due to a more skeptical attitude toward the US, investors increasingly want to invest in Europe, which should benefit real estate. According to US financial information provider Morningstar, 26 billion euros flowed into European equity funds in the first quarter of this year, following twelve consecutive quarters – three years – of net outflows.

€15.3 bn

volume of transactions in H1 2025

-1 %

compared to H1 2024

In April and May, a further 22 billion euros net flowed into European funds.
Capital collectors and international investors have withdrawn billions from US markets and shifted to Europe. Investors feel compelled to reduce their US holdings and diversify more. Key drivers include political developments in the US, the fact that many investors previously built large overweight positions in the US, concerns about further dollar weakening, and hopes for increased competitiveness in the European economic area.

Overall, the market should moderately revive in the second half of the year for these reasons. However, JLL doesn't expect a boom in the July to December period, but rather a return to the "old normal" – market conditions that prevailed before the zero-interest era. For the full year 2025, JLL anticipates a transaction volume of 35-40 billion euros.

After a promising start to the year with increased demand for offices, this trend couldn't continue in the second quarter. The office investment market hasn't found stable ground yet, with only 2.8 billion euros changing ownership by mid-year. Two-thirds of these deals were completed in the first quarter. Residential properties continue to make up the bulk of investments with a half-year volume of 5.5 billion euros (36 percent), confirming their position as the currently most sought-after asset class. The first half of 2025 lacked large transactions across asset classes. Only one office transaction exceeding 100 million euros was recorded in the second quarter of 2025: a portfolio of two properties in Munich and Hamburg. Across all asset classes, there were only nine deals beyond the 100-million-euro threshold.

Number of portfolios

Volume each ≥ €100 mn

13

H1 2024

13

H1 2025

Institutional investors who typically handle such transactions haven't fully returned to the market. Private investors and family offices remain active, but with exceptions, their "sweet spot" is typically in the 50-80 million euro range. By far the largest transaction was recorded in the retail warehouse segment, involving the sale of more than 100 furniture stores by the Porta Group to XXXLutz for a high three-digit million euro amount. Interesting developments are emerging in the retail sector. JLL sees more product offerings across all usage types. After years of restraint, institutional investors are showing tentative interest in this asset class again. The yield spread between inner-city commercial buildings, shopping centers, and retail parks remains considerable, reflecting different risk assessments within the sector. Currently, there's a good window of opportunity for retail investments. The sector achieved a volume of 2.9 billion euros in the first half of the year, representing a 19 percent share. The logistics sector is showing more robustness than in the first quarter despite the still tense global trade situation. With a transaction volume of around 2.3 billion euros at mid-year, this asset class ranks fourth. Investors continue to see attractive investment opportunities, with defense/security themes increasingly on the agenda.

Interestingly, portfolio transactions performed better than the overall market at mid-year, primarily due to higher dynamics in the living segment. More than half of all portfolio deals involved residential products. Portfolio transaction volume increased by around 26 percent to 5.3 billion euros in the first half of 2025 compared to the same period last year, while individual properties decreased by more than eleven percent to ten billion euros. The seven real estate hubs Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart recorded investments totaling around 5.9 billion euros in the first half of the year, representing a 29 percent decrease compared to the same period last year. Berlin remains the most active market with 1.93 billion euros despite a 45 percent decline. Hamburg follows with one billion euros and a substantial 42 percent increase. Besides Hamburg, only Stuttgart showed growth among the hubs. Munich reaches third place with 990 million euros but suffered a strong decline of more than 44 percent, similar to Berlin and Cologne. While the seven metropolises contributed more than half of the transaction volume in the first half of 2024, this share has now dropped to 39 percent. This below-average value compared to the ten-year average isn't due to the metropolises' lack of attractiveness but to the current scarcity of core products. Additionally, transaction results in the seven real estate hubs previously relied heavily on office transactions – an asset class still viewed skeptically by some investors.

Yield development shows interesting shifts. Office properties experienced slight compression of the aggregated net initial yield to 4.33 percent in the second quarter of 2025 in the seven metropolises, after remaining constant at 4.36 percent since the third quarter of 2024. Given weak transaction numbers, this decrease may be surprising, but deals completed in the second quarter confirm this compression. The trend toward lower yields continues in the residential segment. The prime yield for apartment buildings decreased slightly by another five basis points to 3.51 percent in the second quarter of 2025, underscoring the persistently high demand for this asset class perceived as secure. 

Development in the retail segment remains stable, but sub-asset classes show a differentiated picture: Shopping centers offer the highest yields among all property classes at a constant 5.9 percent. Retail parks remain at 4.6 percent, and commercial buildings in prime locations stay constant at their low level of 3.5 percent. Contrary to the general trend, prime yields for logistics and industrial properties increased slightly by ten basis points to 4.4 percent in the second quarter. This reflects the current dip in the leasing market. User types and industries are changing, affecting rental rates and ultimately purchase prices. Yields, particularly in the living sector and for grocery-anchored retail properties, could decrease by five to ten basis points by the end of 2025, while other asset classes are expected to stabilize at current levels. Alternative sectors like hotels, data centers, and life science are developing particularly dynamically, benefiting from global mega trends.

Data centers have gained focus especially since the artificial intelligence boom, with impressive growth forecasts for the coming years. However, these very specialized infrastructure investments require considerable expertise, and while JLL sees many declarations of intent to invest in this asset class, this has so far resulted in only a few transactions.

The German real estate market is moving sideways but shows signs of recovery in the second half of the year. The further alignment of price expectations between buyers and sellers, combined with stabilized financing conditions, is leading to increased investment willingness. Many processes are underway that should result in completed transactions in the coming six months. Transaction volume in the second half of 2025 should significantly exceed that of the first half.

Our Capital Markets contacts:

Capital Markets & Office Investment:
Konstantin Kortmann, CEO JLL Germany & Head of Capital Markets Germany

Industrial Investment:
Diana Schumann, Head of Industrial Investment Germany

Residential Investment:
Michael Bender, Head of Residential Germany

Retail Investment:
Sarah Hoffmann, Head of Retail Investment Germany

Research:
Helge Scheunemann, Head of Research Germany

Debt Advisory:
Dominik Rüger, Senior Director, Debt Advisory Germany