International capital is making a decisive return to Germany’s residential market, with foreign investors more than doubling their share of quarterly investment as large-scale portfolios and new rental developments attract institutional money.
For Australian real estate businesses, the German market offers an interesting read on where major capital is moving in a higher-cost environment: investors are becoming more selective, but housing shortages and opportunities to acquire at scale continue to draw money into residential property.
According to Cushman & Wakefield, international investors deployed €618 million (about A$996 million) into German residential property during the September quarter, accounting for about 38 per cent of total transaction volume.
That compares with just 17 per cent in the same quarter last year and 40 per cent in the June quarter.
Across the first nine months of 2026, international investors accounted for €1.98 billion (A$3.19 billion), or 34 per cent, of residential investment tracked by Cushman & Wakefield.
The renewed international interest comes despite a softer quarter overall.
Cushman & Wakefield recorded €1.65 billion (A$2.66 billion) in German residential transactions during the third quarter, down about 17 per cent from €1.99 billion (A$3.21 billion) a year earlier and 26 per cent below the €2.22 billion (A$3.58 billion) recorded in the second quarter.
That took transaction volume for the first nine months of the year to €5.75 billion (A$9.27 billion), just 1.6 per cent below the €5.84 billion (A$9.41 billion) recorded over the same period in 2025.
Cushman & Wakefield Head of Residential Investment Germany Jan-Bastian Knod said investors had become more selective as financing costs increased.
“The third quarter of 2026 was characterised by a more selective investment environment. Higher financing costs have led to delays in transaction processes,” Mr Knod said.
“At the same time, the significant share of portfolio transactions demonstrates that large-scale capital, particularly from international sources, continues to target the German residential market strategically.”
Other data points to the same trend
Separate research from CBRE points to an even stronger return of international capital, although its figures are based on a different transaction dataset.
CBRE recorded almost €5.9 billion (A$9.51 billion) in German residential investment during the first nine months of 2026, including approximately €2.3 billion (A$3.71 billion) in the third quarter.
Foreign buyers accounted for around three-quarters of CBRE’s third-quarter investment volume and were particularly active in larger portfolio transactions.
Residential was also Germany’s largest real estate investment asset class over the first nine months of the year under CBRE’s analysis, accounting for about 25 per cent of total property investment.
But the number of transactions fell from 51 in the second quarter to 44 in the third, reinforcing the picture of capital becoming concentrated in fewer, larger deals.
Portfolio transactions accounted for around 75 per cent of CBRE’s third-quarter residential investment, while existing properties represented about 89 per cent.
The average prime yield for multifamily housing across Germany’s seven largest cities increased 0.2 percentage points during the quarter to 3.59 per cent, while Cushman & Wakefield, using its own methodology, put the prime multifamily yield at 3.80 per cent.
Housing shortage underpins the investment case
Behind the renewed appetite for residential property is a familiar issue for Australian property professionals: insufficient housing supply.
Separate Colliers research forecasts about 185,000 homes will be completed across Germany in 2026, down 10 per cent from 206,600 in 2025.
At the same time, Colliers expects the number of households across Germany’s 50 largest cities to increase by about 408,400 by 2040, adding further pressure to housing demand.
BNP Paribas Real Estate has also described Germany’s residential investment market as robust, recording €5.9 billion (A$9.51 billion) in investment during the first nine months of 2026 under its measure covering residential portfolios of at least 30 units.
The firm said residential remained Germany’s highest-turnover real estate asset class, supported by institutional demand despite higher capital-market yields, geopolitical uncertainty and tougher price negotiations.
For Australian real estate businesses, the German numbers provide another example of the resilience of residential property as an institutional asset class when housing supply remains constrained.
Capital has not returned indiscriminately. Instead, international investors are targeting scale, diversified portfolios and new rental developments while higher financing costs make deal selection increasingly important.
“Despite lower transaction volumes in the third quarter, the residential investment market remains in solid shape,” Mr Knod said.
“After nine months, activity is broadly in line with last year’s level, while large-scale portfolio transactions are once again being completed.”
Mr Knod said investors were becoming more disciplined and financing conditions would increasingly determine which transactions ultimately proceed, with those conditions expected to continue shaping activity into 2027.