Germany remains solid CRE hub, but lenders get picky

Germany remains a strong and stable location for commercial real estate (CRE) investment, attracting international attention.

Germany

This is due to robust property types (residential, logistics, food retail), high liquidity, and a reliable legal framework. High property quality (28%), strong segments (21%), stable legal conditions (19%), and attractive entry prices after price corrections (17%) are key attractions.

However, according to the latest "Trendbarometer" survey by Berlin Hyp, debt capital providers are becoming more selective in their financing.

The main concerns for Germany's attractiveness are a weak economy and uncertain macroeconomic environment (32%). Structural problems in the office sector, such as vacancies and further price adjustments (22%), are also significant. A subdued transaction and financing environment (18%) and high regulation/bureaucracy (17%) add to the challenges. Interest rates and classic property risks are less of a concern.

Lenders are applying a "segment-differentiated risk aversion" (60%), meaning their willingness to lend depends heavily on the property's use, location, and quality. While there's a general decline in risk appetite, core/core+ properties in good locations with strong sponsors still have good access to debt capital. Weaker segments, especially challenged offices, face more restrictive lending.

Foreign investors face tougher debt financing conditions, including lower loan-to-value ratios (requiring more equity, 27%), stricter covenants and monitoring (25%), and significantly higher margins and risk premiums (21%). A stronger focus on sponsor quality (14%) is also evident. This makes the German debt market safer for lenders but more demanding for international investors.

Germany primarily competes with other Western European markets (France, Benelux, Scandinavia - 41%) and Southern Europe (20%) for CRE investment.