Whilst many German property investors are currently preoccupied primarily with refinancing, write-downs and difficult financing conditions, a remarkable development is unfolding in the background.
Ironically, it is during one of the most challenging phases of the German commercial property market that new buyers are entering the scene, and they are often from Switzerland.
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Unlock content Accept the required service and unlock contentIt is primarily high-quality office properties in prime locations in major German cities that are currently changing hands. This often takes place discreetly, outside of public marketing processes, and not infrequently at prices that would have been almost unimaginable just a few years ago.
The key question is therefore no longer whether Swiss capital is flowing into Germany. The more intriguing question is just how large this capital movement might actually become.
A market under pressure
Anyone following developments in the German commercial property market will quickly realise why opportunities are currently arising for well-capitalised investors.
With the end of the period of low interest rates, the market environment has changed fundamentally. The years of growth, driven by favourable financing conditions and rising valuations, have given way to a phase of reorganisation.
This is also evident in transaction volumes. Whilst turnover regularly exceeded 70 billion euros per year during the boom years, market activity has since declined significantly. Many market participants are adopting a wait-and-see approach, others are forced to sell, and numerous financing arrangements face difficulties in securing renewal.
Office properties, leveraged portfolios and development projects – which were still calculated on the basis of the assumptions made during the years of low interest rates – are particularly affected.
The refinancing trap is snapping shut
The real problem for many owners does not lie in the day-to-day running of their properties. It lies in their capital structure.
Between 2018 and 2021, numerous office properties were financed with historically low-cost loans. At the time, financing costs were in some cases at levels that seem almost unimaginable today. Many of these loans are now coming to an end.
However, roll-over financing is taking place in a completely different landscape. Banks are demanding higher margins, conducting much stricter due diligence and often assessing properties more cautiously than they did just a few years ago.
This creates a twofold problem for many owners: financing is becoming more expensive, whilst at the same time property values have fallen. It is precisely this combination that can prove dangerous.
If a property’s market value falls, banks often require additional equity to restore the loan-to-value ratio to a balanced level. Not every owner is able or willing to provide these additional funds.
The result is forced sales, restructuring or so-called distressed transactions. For buyers with substantial equity, this is precisely where the interesting phase begins.
Why Swiss investors currently have the upper hand
The appeal of German office property currently stems less from the properties themselves than from the difference between the capital markets in Germany and Switzerland.
Whilst many German investors have to factor in significantly higher financing costs, Swiss investors are benefiting from a much more favourable interest rate environment. This gives them an advantage which may seem insignificant at first glance, but which has enormous implications in practice.
After all, decisions on property investments are ultimately determined by the difference between financing costs and the return on the property.
If an investor can raise capital on particularly favourable terms whilst simultaneously acquiring property with attractive initial yields, a positive leverage effect is created. It is precisely this effect that is currently making many German office properties attractive to Swiss investors.
What may be a tight calculation for a German buyer suddenly appears to be an attractive opportunity from a Swiss perspective.
The Swiss franc is becoming an additional driver of returns
Added to this is a factor that is underestimated in many market analyses: the currency.
The Swiss franc has strengthened significantly against the euro in recent years. For investors from Switzerland, this means that German assets have become more affordable simply as a result of the exchange rate. This further improves the starting position.
An investor holding their capital in francs now has greater purchasing power in the eurozone for the same amount than they did a few years ago. Even with stable property prices, this can result in an additional advantage.
For many Swiss investors, German office properties are therefore doubly attractive: valuations have fallen and the exchange rate is also working in their favour.
Why family offices in particular are taking action
It is striking that many of these transactions are not being carried out by large funds or insurance companies. Instead, family offices, entrepreneurial families and private investment firms are particularly active. There is a simple reason for this.
Family offices are subject to significantly fewer regulatory restrictions than institutional investors. They do not have to adhere to fixed fund quotas or meet complex investment requirements, and can often make decisions within a matter of days.
Particularly during market phases when sellers need to act quickly, this flexibility becomes a decisive competitive advantage.
Whilst large institutions are still going through internal committees, family offices can already make a purchase decision. In a distressed market, speed is often just as important as capital.
The public doesn’t even see the most exciting deals
Another aspect is frequently overlooked: many of the most attractive transactions do not feature in any press releases.
Sellers under pressure, in particular, are often not interested in a public marketing campaign. A distress sale that becomes public knowledge can raise questions with banks, influence pricing or have an impact on other properties in the portfolio.
Consequently, a significant proportion of market activity is shifting to the off-market sector. This sector is dominated by personal networks, specialist advisers and direct contacts between buyers and owners.
Anyone without access to these networks will miss out on many of the most interesting transactions altogether.
What is currently being bought
Demand is by no means concentrated across the entire office property market. The main focus is on high-quality properties in established locations with long-term letting prospects. Particular attention is being paid to the major German office markets such as Berlin, Munich, Frankfurt and Hamburg.
It is therefore not a matter of speculative bets on problematic properties, but rather, in many cases, the targeted acquisition of high-quality properties at prices that have become attractive from the buyers’ perspective.
It is precisely here that it becomes apparent that international investors often act counter-cyclically. They do not buy when the market is euphoric, but when uncertainty prevails.
Does this spell bad news for German investors?
Not necessarily. The current flow of capital is concentrated primarily on top-tier properties. In many other market segments, competition remains considerably more manageable.
Regional commercial properties in particular, smaller office buildings, B and C locations, or value-add strategies often require a deep understanding of the local market. In these areas, personal contacts, operational experience and active asset management often count for more than sheer financial strength.
And it is precisely in these areas that many German investors continue to hold a significant advantage over international buyers.
Those who know the local markets, have built up networks of property owners and can actively realise potential for value appreciation will still find attractive opportunities today.
The real market shift is taking place behind the scenes
The increase in purchases from Switzerland is neither a short-term trend nor a random snapshot.
They are the result of several developments occurring simultaneously: rising refinancing pressure in Germany, lower cost of capital in Switzerland, a strong Swiss franc and significantly lower valuations for many properties.
These factors create a market environment in which well-capitalised buyers with a long-term investment horizon are particularly well placed.
There is therefore every reason to believe that Swiss family offices will continue to play an important role in the German commercial property market in the years to come.
Conclusion: Competition is becoming more international
The German commercial property market is in the midst of a realignment of opportunities and risks. Whilst many domestic market participants are still grappling with the consequences of the interest rate turnaround, international investors are already actively capitalising on the resulting market distortions.
Swiss family offices, in particular, are increasingly emerging as buyers of high-quality office properties, often acting discreetly, frequently off-market and backed by substantial capital.
For German investors, however, the key insight is not to compete against these buyers. Far more important is the question of which market segments play to their own strengths.
After all, where local know-how, operational expertise and strong networks are decisive for success, the competitive advantages often lie with those who know the market best.
