Key takeaways
- The German residential investment market recorded roughly EUR 1.6 to 1.9 billion in the first quarter, depending on the methodology, a decline against an already subdued prior-year period.
- Savills put the figure near EUR 1.6 billion, down around 16 percent year on year, while Cushman & Wakefield described a subdued start with volumes off by close to thirty percent on one measure.
- The contradiction resolves once you look past the euros to the deal count: the number of transactions actually rose, by roughly six percent to 57 in one widely cited reading, even as average ticket size fell to around EUR 29 million.
There is a paradox at the heart of German residential investment in 2026. By almost every measure of underlying demand, living is the most coveted asset class in the country - the anchor of investor appetite, the segment cross-border capital most wants to own, the structural story everyone believes in. And yet the first-quarter transaction numbers were soft. Understanding why the most wanted asset class is also one of the harder ones to deploy into is the key to reading the residential market this year.
Strong demand, soft volume
The German residential investment market recorded roughly EUR 1.6 to 1.9 billion in the first quarter, depending on the methodology, a decline against an already subdued prior-year period. Savills put the figure near EUR 1.6 billion, down around 16 percent year on year, while Cushman & Wakefield described a subdued start with volumes off by close to thirty percent on one measure. JLL's living market data and CBRE confirm the same direction of travel.
The decline in headline volume sits awkwardly against the demand picture. As noted in the broader JLL investment overview, living held its place as the strongest asset class with a share approaching 28 percent of all commercial investment. The contradiction resolves once you look past the euros to the deal count: the number of transactions actually rose, by roughly six percent to 57 in one widely cited reading, even as average ticket size fell to around EUR 29 million. Appetite is intact. What has shrunk is the supply of large, lot-size product that institutional capital needs to move meaningful volume.
What the deal mix reveals
The composition of activity is more instructive than the total. Core transactions dominated, accounting for around 45 percent of volume, a clear statement that capital re-entering living wants stabilised, low-risk income rather than business-plan-heavy value-add. At the same time, forward deals made up a striking share - roughly 37 percent - which tells you that a meaningful slice of institutional money is being committed to new supply that does not yet exist, structured to lock in modern, energy-efficient product at today's repriced economics.
That forward-funding share matters strategically. It is simultaneously a vote of confidence in the rental thesis and a symptom of the market's central problem: there is not enough existing standing stock of the right quality and scale changing hands, so capital reaches into the development pipeline to find it. Domestic investors continued to dominate, providing around three-quarters of volume, while international capital supplied the rest and turned net buyer on a modest scale. The foreigners are back, but they are not yet the marginal price-setters they were in the last cycle.
The fundamentals underwriting the thesis
What keeps living at the top of every allocation list is the unrelenting imbalance between housing demand and supply. Germany continues to build far fewer homes than its household formation and migration require, and the construction that does happen is getting more expensive: prices for newly built conventional residential buildings rose around 3.3 percent year on year by early 2026 according to the Federal Statistical Office. Higher build costs choke new supply, which tightens the existing rental market, which underpins rent growth and, ultimately, income durability for owners.
This is the engine beneath the asset class: a chronic shortage that policy has struggled to fix and that elevated financing and construction costs are actively worsening. For investors, durable, regulated, inflation-linked rental income in the largest economy in Europe is precisely the defensive cash flow that looks attractive when other sectors carry occupancy or obsolescence risk. The Julius Baer property market report frames living as the structural core of any German allocation for exactly this reason. The risk sits less in demand than in regulation - rent caps, energy-retrofit obligations and the political temptation to lean harder on landlords as affordability pressures mount.
Outlook: a sourcing problem, not a demand problem
The constraint on residential investment in 2026 is not conviction but availability. With sellers of quality standing stock reluctant to transact at clearing prices and the development pipeline thinned by high construction costs, the binding constraint is product. Volumes are likely to grind higher through the year as price discovery advances and as refinancing pressures push more portfolios to market, but a sharp acceleration would require either a meaningful fall in financing costs or a wave of motivated institutional disposals - neither guaranteed in 2026.
What this means for principals: in living, the scarce commodity is not capital or conviction but access to the right product, so 2026 is a year to compete on origination rather than on price views everyone already shares. Forward-funding and development partnerships are the most reliable route to modern, compliant stock at sensible basis, and the strong forward-deal share shows sophisticated capital has already concluded as much. Underwrite regulatory risk explicitly - rent regulation and retrofit capex are now core to the residential thesis, not footnotes - and favour markets and submarkets where supply shortage is most acute and rent growth most defensible. The structural case for German living is as strong as ever; the edge in 2026 comes from solving the sourcing problem before competitors do.
AI-generated, editor-reviewed. Briefings are drafted by neospaces research models from current broker market data and reviewed by a broker before publication.