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The era of uniform returns across German real estate has definitively ended. While investors could expect relatively similar performance across asset classes in 2015, today's market demands specialized expertise and niche positioning to achieve meaningful returns, with industrial properties leading at over 6% IRR as broad market stagnation separates successful investors from passive ones.
Bulwiengesa's eleventh annual Five Percent Study reveals a market where professional management and specialized knowledge increasingly determine investment success. Industrial properties topped the yield rankings with a base internal rate of return of 6.14%, while core markets remained roughly at previous levels and secondary locations emerged as attractive alternatives for discerning investors.
"This year's results clearly illustrate this new reality," writes Sven Carstensen, CEO of Bulwiengesa AG. "Today more than ever, the market rewards professional management and specialised expertise—a development that separates successful investors from passive ones."
The study, based on Monte Carlo simulation analyzing IRR over ten-year holding periods, examined 127 office markets and 68 residential markets across Germany. The analysis reveals stark differentiation between asset classes, locations, and risk profiles that institutional investors can no longer ignore.
Industrial and production properties deliver the strongest returns but require sophisticated management capabilities. Production properties achieved a base IRR of 6.14%, with core segment performance ranging from 4.83% to 7.51%. However, this asset class demands specialized management expertise and carries exposure to economic fluctuations that can impact performance significantly.
Modern logistics properties exceeded the symbolic 5% threshold with a base IRR of 4.93%, representing a substantial increase of approximately 60 basis points from 2024. The core range extends from 3.66% to 5.23%, reflecting selective good entry opportunities as rent increases outpaced previous years. Quality increasingly determines success in this segment, with institutional demand remaining stable for high-standard properties.
Business parks offer another specialized opportunity at 5.22% base IRR, with core performance spanning 3.97% to 5.99%. Warehouses deliver 4.59% base returns with core ranges from 3.74% to 5.94%. These segments demonstrate stable cash flows with minimal yield fluctuation, making them attractive for specialized institutional investors seeking defensive characteristics.
Hotels showed continued stabilization with base values between 4.49% and 4.87% for two- to four-star properties. Occupancy rates and room prices have stabilized at robust levels, though performance depends heavily on operator quality and management expertise.
Office properties remain selective investment targets despite slight yield improvements. A-market office properties recorded IRRs of 3.91%, representing a 21 basis point decline that Bulwiengesa characterizes as "slight easing." The core segment can achieve up to 4.6% returns, while B, C, and D markets follow with 4.4%, 4.8%, and 5.6% respectively.
The yield gap between city categories has widened to 49 basis points between A and B markets, compared to 38 basis points in 2024. This reflects the increased impact of CapEx costs for existing buildings, particularly in smaller markets with lower rent levels where energy-efficient renovation requirements significantly affect yields.
"Reluctance remains high, even though the uncertainty caused by working from home has eased slightly," notes the study. "Questions remain regarding future demand for office space and the capex requirements for existing properties due to the increased need for energy-efficient refurbishment."
Non-core office properties present high-risk, high-reward opportunities with IRRs reaching 10%, though they carry total loss risks. Only investors with strong technical management expertise succeed consistently in this segment, while the transaction market remains fragmented with persistent gaps between buyer and seller price expectations.
Residential real estate demonstrates stable performance with subtle but significant geographical variations. A-markets recorded a slight decline of 15 basis points to 2.8% IRR, while B-markets rose to 3.01% and university cities achieved 3.24% returns. This reversal reflects growing institutional interest in secondary markets that Carstensen expects to continue.
"Interest in residential investments has increased significantly in 2025, especially outside the A markets," according to the study. With inflation running between 2% and 2.5%, residential real estate maintains its attraction as an investment alternative, particularly as investor focus expands to secondary markets.
Furnished apartments and microliving segments capitalize on housing shortages in major cities. Furnished apartments achieved IRRs of 4.11% in A cities and 4.32% in B cities, reflecting strong demand for flexible housing solutions. In the core segment, yields range from 2.83% to 4.30% in A markets and 3.01% to 4.49% in B markets, highlighting the increased attractiveness of this specialized asset class.
Retail property performance varies significantly by format and positioning. Retail parks with strong food anchoring continue attracting institutional interest with base IRRs of 4.34%. The core segment delivers returns between 4.2% and 5.2%, reflecting consistent demand for necessity-based retail formats that demonstrate defensive characteristics. Shopping centers present more complex investment scenarios, with base values of 4.89% and transactions typically involving conversion options rather than traditional investment strategies.
The market's professional management premium extends to distressed property opportunities that institutional investors often avoid due to ESG compliance requirements. Klaus Beine and Florian Baumann, partners at lawyers Advant Beiten supporting the study, identify this as a key challenge.
"The key challenge will be to identify which distressed properties can still be prepared for the institutional market," they note. Yield-oriented investors find increasingly attractive opportunities in the distressed segment, though success requires specialized expertise and asset management capabilities.
The study's methodology focuses on IRR rather than purchase yields, providing more meaningful performance analysis for institutional decision-making. Unlike static return calculations, the dynamic model determines probable internal rates of return over ten-year holding periods, allowing direct comparison of earnings prospects across different asset classes and risk profiles.
REFIRE: The Five Percent Study confirms what many institutional investors suspected - the German market has moved beyond broad-based allocation strategies toward specialized expertise requirements. Industrial properties offer the highest returns but demand operational knowledge most institutions lack. The residential sector's geographic performance divergence suggests secondary markets and university cities merit serious consideration, while furnished apartments and micro-living provide defensive growth in supply-constrained markets. Office investments require careful selection and significant CapEx planning, making them suitable primarily for experienced operators. For institutional portfolios, the takeaway from the study is pretty clear: generic real estate allocation no longer suffices, and success depends on specialized knowledge, active management, and willingness to pursue niche opportunities that passive investors cannot access.
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