Source: bulwiengesa.de
The 5% Study 2026
Every autumn, bulwiengesa and the law firm ADVANT Beiten take their 5%-Studie on the road, presenting a fresh set of internal-rate-of-return figures across German property’s main asset classes to audiences in the country’s largest cities. The headlines accompanying this year’s twelfth edition have emphasised that potential returns are rising across nearly every segment, with offices leading the movement.
That is true, but easily misread. Five per cent is available across more of German property again, but it represents compensation for different forms of risk rather than evidence of recovery.
The 5%-Studie uses projected cash flows to calculate the probable internal rate of return an investment may deliver over a ten-year holding period. It incorporates the purchase price, rental income, property and management costs and an assumed sale price, producing a more dynamic measure than the static initial yields quoted in most market reports.
This year’s highest base figure belongs once again to light-industrial property, at 6.17%, essentially unchanged from 6.14% last year. Business parks follow at 5.27%, while modern logistics stands at 4.93% and has also moved little.
Offices have changed much more significantly. The calculated base IRR in A-cities rose from 3.91% to 4.32%, while B-cities reached 4.72%. C-cities moved above the symbolic threshold to 5.05%, with D-cities offering 5.61%. Hotels now range from 4.84% to 5.21%, compared with 4.49%–4.87% last year, while shopping centres stand just below the mark at 4.96%.
Residential remains at the bottom of the table: 2.98% in A-cities, 3.13% in B-cities and 3.38% in university towns. Its return potential has increased, but considerably more slowly and from a much lower base.
A rising return is not the same as a healthier market
Sven Carstensen, bulwiengesa’s managing director, states the correct reading of the figures plainly: “The slight rise in potential yields should not be confused with a broad market recovery.”
That's important. An IRR is the return generated by the cash flows and assumptions within the model, not simply the minimum returns an investor demands before committing capital. Investor requirements nevertheless feed into the calculation through the price buyers are prepared to pay, while rental expectations, costs and the eventual exit value influence the result as well.
A rising modelled IRR can therefore record price adjustments that have already occurred, changing income expectations or both. It does not necessarily mean that a property is producing more income, nor does it prove that its price must fall further. In this year’s study, bulwiengesa attributes the general increase partly to higher investor return requirements and inflation expectations, suggesting that greater potential return is at least partly the compensation now demanded for greater uncertainty.
Office provides the clearest illustration. When bulwiengesa first published the study in 2015, as REFIRE reported at the time, the expected IRR for a core office property in a German A-city was approximately 3.5%. At the 2021 market peak it had fallen to 2.1%, as cheap capital drove prices upwards and compressed prospective returns. Today’s 4.32% is roughly twice the 2021 level and above the figure with which the study began.
That does not establish that A-city offices have become healthy investments again. It shows how extensively their pricing and return prospects have changed. With commercial transactions still subdued, the model can describe the adjustment more confidently than the market can demonstrate through completed deals.
Five per cent now comes with a choice of risks
The comparison between asset classes is consequently less a ranking of attractiveness than a menu of the risks for which investors may be compensated.
Light-industrial property offers the highest base return, but with lower market liquidity and greater demands upon asset management. Business parks require similar specialist expertise. Modern logistics remains just below 5%, reflecting a more established investment market and comparatively dependable occupier demand.
Offices in C- and D-cities cross the threshold by exposing investors to greater letting, capital-expenditure and exit risk. Location, building quality and adaptability have become decisive as occupiers concentrate upon modern space and older properties require expensive improvement. A 5.05% modelled return in a C-city does not carry the same risk as an equivalent return from a fully let, modern building in a liquid A-market.
Hotels approach or exceed 5% through exposure to operating performance, tourism and business travel. Shopping centres reach 4.96%, but property quality, location and the ability to reposition ageing assets remain central to whether that projected return can be achieved.
Residential offers much less, reflecting both its pricing and investors’ continuing confidence in its income. Housing shortages, weak construction activity and rising rents support the cash-flow outlook, particularly in larger and university cities. Investors accepting an IRR of around 3% are effectively paying for that relative defensiveness.
At the other end of the spectrum, potential returns from non-core property can reach 10%. Yet few transactions are taking place because uncertainty over future demand, energy-related expenditure and eventual resale values makes those returns difficult to underwrite. The largest number in the table may therefore be the least readily obtainable.
REFIRE: The return of 5% to a broader range of German property does not mean the market has recovered. It means repricing has made higher returns theoretically achievable, while investors demand greater compensation for the risks attached to producing them.
The relevant question is no longer simply where 5% can be found. It is whether that return adequately rewards an investor for illiquidity in industrial property, occupational uncertainty in offices, operating exposure in hotels or the cost of repositioning retail assets.
Bulwiengesa’s figures show how far the market has travelled from the low-return peak of 2021. The continuing shortage of transactions means they cannot yet show with equal confidence that the destination has been reached.