July 12th 2012, Munich – As anticipated, following strong sales in the previous year with numerous large transactions, chiefly of shopping centres, the volume of transactions in the retail property sector was considerably lower in the first half-year of 2012 than 12 months ago. “Overall, we registered sales of real estate used for retail purposes of almost Euro 2.6 billion which, compared with the first half-year of 2011, represents a decline of approximately 56 per cent”, says Andreas Trumpp, head of research at Colliers International Germany. In total therefore, retail properties had a share of 28% of the total volume of commercial transactions of € 9.4 billion during the first six months of the current year. At roughly 42% (€ 1.1 billion), the share of portfolio sales was slightly above the previous year’s share of just 40%. Foreign investors secured German retail properties to the value of € I billion, corresponding with a market share of roughly 40 %.
Fewer large-volume sales than 12 months ago
The number of large-volume sales in the current year with a value in excess of € 100 million was considerably below the comparable value for the same period in the previous year. Whilst a volume of transactions of roughly € 3.5 billion was achieved in this size segment during the first six months of 2011, this sank to only approximately € 1.3 billion in the first half of 2012. The largest sales in the period from January to June included Allianz Real Estate’s acquisition of shares in the Europa-Passage in Hamburg and the purchase by Union Investment of the Europa-Galerie in Saarbrücken. In addition, Unibail-Rodamco not only acquired 50 % of the Ruhr-Parks in Bochum but also acquired a stake of more than 90% in the developer mfi.
Shopping centres the strongest investment vehicle in terms of sales
Based on the volume of transactions during the first half-year, shopping centres constitute by far the most powerful investment vehicle in terms of sales. “Almost Euro 1.6 billion, representing 60 % of the capital invested in real estate used by the retail trade, was invested in shopping centres” is how Andreas Trumpp describes the situation. “Retail properties in 1a inner-city locations as well as department and general stores changed owners for a good half-a-billion Euro” he went on to explain. In spite of continued high demand for properties of between € 10 and 50 million, specialist shopping centres and specialist stores were only able to achieve a market share of around 15% or € 400 million, due chiefly to the lack of supply, particularly of newly-developed properties, as well as diverging price and return expectations on the part of sellers and prospective purchasers of existing properties.
Real estate PLCs’ and open-ended real estate funds/ special funds are the largest investors
Based on the volume of transactions at the end of the first half-year, real estate PLCs’ were the top investors due to Unibail-Rodamco’s acquisition of a stake in mfi with approximately € 756 million of invested capital. Open-ended real estate funds and real estate special funds invested roughly € 586 million and followed with 22% market share, occupying second place. In total, therefore, these two groups of purchasers accounted for more than half the volume of transactions.
Prime yields prove to be stable
“Business properties in 1a locations, particularly favoured by security-focussed private investors and family offices, are still traded very rarely on the market and therefore command appropriately high prices,” says Andreas Trumpp. The prime yields for this type of building remained stubbornly at a high level and at the end of the first half-year lay between 3.75 % in Munich and 4.80 % in Berlin. Depending on their location, shopping centres achieved between 5.20 % and 6.50 % and specialist shopping centres around 6.50 %.
Outlook: high demand, limited supply
“Due to the continued limited supply of larger properties for sale, in 2012 the volume of transactions in the retail investment market will finish up below the previous year’s level,“ is how Andreas Trumpp sums up the situation. Although there is sufficient demand for appropriate properties, supply in the premium segment is just as limited as in shopping centres due for development in the value-add sector. It is in this market segment however that prospective buyers’ and sellers’ diverging price and return expectations are most marked. According to Andreas Trumpp: “Due to the lack of new properties, the demand for specialist shopping centres priced at about € 15 to 50 million cannot currently be satisfied. That is why we are expecting a slight increase in prices here”. Smaller properties under € 10 million on the other hand will not move since the costs of managing the property appears too high to investors relative to the purchase price and cash flow.