Germany's New Commercial-Property Buyer

German state and municipal governments have rarely been significant buyers of commercial real estate until now. Since 2023, public-sector bodies have acquired more than EUR 5 billion of German commercial property, more than they purchased during the entire property boom from 2014 to 2022.

The shift has coincided with the market downturn that followed the inflation shock and rapid interest-rate increases of 2022. The resulting decline in liquidity and rise in corporate and asset-level distress created opportunities for public-sector buyers. State and municipal governments have stepped in to acquire commercial real estate (CRE) for their own use, to increase public ownership of strategically important properties, or support economic development and regeneration.

Falling values have helped facilitate these transactions. German office prices, for example, have dropped around 46% from their peak in 2022. In other cases, assets have entered public ownership through distress processes. More than EUR 450 million of formerly Signa Group-owned property is now in public hands, for example.

The trend bears similarities to the U.K., where CRE acquisitions by local authorities surged in the late 2010s. The motivations were quite different in the U.K., however, as many councils acquired commercial property as an investment strategy, financed by low-cost borrowing from central government. Subsequent losses on some of these investments led to tighter restrictions on borrowing for purely yield-driven acquisitions.

Investment by German state and municipal government slowed in 2025 but has risen again as a proportion of market activity in 2026, the latest MSCI Real Capital Analytics data shows. The question is whether German public-sector buyers will continue to play a role in CRE markets or whether the recent spike is a one-off reaction to market dislocation.

More broadly, the federal government's fiscal expansion plans could potentially bolster public-sector involvement in the German property market, should increased spending on defense, infrastructure and digitalization materialize as planned.