Germany has one of the most developed commercial real estate markets in Europe: a huge number of properties in different price categories, which are suitable for those who plan to make their first investment deal and explore the possibility of the market, as well as large funds, multifamily offices and private buyers from the United States, MENA, and Europe, who are interested in exclusive properties. Here, we’ll cover the topic of what kind of real estate to buy in Germany for €100K-€100M+ when the goal is a conservative investment “for retirement” and “children.”
The real estate market in Germany is not about fast payback. It is a guarantee of high reliability of investments and growth in value. The yield significantly depends on the location of the object. For example, in Munich it could be 1-2 percent, but there is a high probability of increase in the cost of housing. Whereas in the former GDR, the yield can be 7%, but the growth in value is negative. Let’s look at the options for different price segments to make sure the property is preserved (reliability of the country), increasing in value (long term), and is liquid (Core / Core+).
Here is the real profitability, not from brochures:
- Flats: 1.5-2.5% in top 7 cities
- Apartments: 2.5%-3.5% in top 7 cities
- Commercial realty: 3-4% in top 7 cities (center: 1-2%, city: 2.5%-4%, suburbs: 4-5%, suburbs: 5-6%, small towns: 6-7%)
It’s not worth investing at all. Today, those who have limited funds are turning to this category of real estate.You’ll get absolutely illiquid real estate properties in small towns. The whole income from rent will be eaten up by management costs, tax reporting, repairs, etc. Properties in this category are hard to recommend, even for the first investment transaction.
Apartments or one-room flats, if possible long-term lease. These will be small towns, but already quite liquid. Apartments or flats in the top 7 cities, mainly in Munich and Berlin. Option 1 is to rent it out long-term. But there is a nuance to consider: if you rent it out for a fixed period of time, you can avoid all the risks with tenants. Another option is to get student or business apartments with a management company that takes care of all the issues.
This can be recommended as a first investment to try out a strategy, learn how to work with contractors and Germany as a whole. If you need a quick turnaround or a refund, it is very convenient.
Apartments, practically a universal option because they grow in price, are easy to manage, and you can theoretically grow your portfolio incrementally from 1-100 units. Or a supermarket in a small town (definitely a chain). Hotels on this budget should not be taken: it will be a hotel in the middle of nowhere, and taking on a management company for a small hotel is unprofitable.
Professional investors in this price range make their first commercial real estate deals in Germany. In addition, you can take a small office or a part of a building, “special properties” (kindergartens, warehouses), or supermarkets in larger cities. A hotel is still not a good idea.
Large supermarkets, also in the top 7 cities. A hotel in a small town, definitely a chain hotel. There are investors in this category, such as Multi-Family Offices that diversify their investments.
Apartment building, full-fledged shopping complex in a small town, separate office building, hotel in the top 7 cities (Berlin, Munich, etc.). Professional investors and funds work in this category. The funds go by clear purchasing criteria. They just need to understand whether the property fits their needs.
4* hotel in the top 7 cities, shopping mall. This niche is also of great interest to funds, professional investors and family offices. The difficulty is that they are looking quite widely in the market, and at the same time there is an objective problem with incomplete databases.
5* hotel, big shopping mall. Professional investors, funds, and family offices do business in this category.
Significant 5* hotels and large shopping centers in the top 7 cities. Prestige, exclusivity and history are important to the buyer.