Tobias Seiler, Research Analyst at Colliers International, comments, “The stability of the German economy, and particularly that of Munich, combined with ongoing low interest rates are behind heavy investment in the Bavarian state capital. Competition for coveted core assets has spiked property prices even further.” The highest-volume transactions include the sale of the Sofitel Munich Bayerpost 5-star hotel to a Deka fund, a deal that was announced just before the end of Q3. The transaction is the only hotel deal among Munich’s top eight so far this year, all of which are going for more than €100 million and account for around 37% of total transaction volume combined. Elisenhof, West 4 and the 88north office new-build changed hands during the first half of the year for 9-digit sums.

Around 68% or €2.7 billion of the capital invested in commercial assets was poured into office buildings. Hotel investments trailed at a considerable distance with a market share of roughly 12%, or €459 million. Although hotels had not been the focus of investor activity for some time, this asset class turned out to be an interesting investment product in 2014, generating a market share of 10%. Mixed-use properties recorded a market share of 10%, or €402 million, in the first nine months of the year, while all other asset classes played only a minor role partially due to the scarcity of supply.

Open-ended real estate funds and special funds generate highest take-up

Open-ended funds and special funds were the most active buyer group, investing around 33% or €1.3 billion in Munich. They were followed by private investors, whose increased investment activity generated a market share of roughly 13%, or €496 million in total. German and foreign pension funds purchased assets for €447 million (11%). As expected, the highest-volume transactions on average involved pension funds with average investment volume at just under €75 million. Real estate funds and special funds followed in the ranks with not quite €70 million per transaction. The average volume of transactions involving private investors was significantly lower, posting less than €20 million per deal at the end Q3.

Project developers and development companies were the most keen to sell assets with a transaction volume of just over €1 billion, followed by open-ended real estate funds and special funds (€798 million) and private investors (just over €600 million).

Munich extremely popular with investors from France and the US with yield compression ongoing

Although the 43% share generated by international investors failed to live up to the 50% recorded at mid-year, it is still well above y-o-y results of 33%. As was the case one year ago, French investors expressed tremendous interest in what is spatially speaking Europe’s third-largest office location and invested almost €570 million in Munich. Amundi Real Estate, for example, purchased 88north for a French investor and AXA purchased Elisenhof and Twenty 8 in downtown Munich. US investors acquired Munich assets valued at over €540 million during the first three quarters of 2015.

Ongoing high demand and a lack of alternative investment options continue to put pressure on yields in all top European markets, a development that can also be felt in Munich. Prime yields for office buildings come to a current 3.75%, down 0.25 basis points year over year. Deals conducted right before the end of the quarter particularly confirm this trend and point to further yield decrease.

Summary

Activity on the investment market continues to be lively with new investors entering the market and looking to compete with more established players. Bela Tarcsay, Managing Partner at Colliers International, observes, “Right now the market does not appear to be overheating even though prices for core assets have surged over the past several years.” Enthusiastic leasing activity is creating a lively investment environment as well. However, new supply of high-volume core products available to investors will remain limited due to the low completion volume of the past few years. “With the end-of-year rally coming up and the deals that are currently underway, we expect a transaction volume of over €1 billion in Q4, which should take us past last year’s results of €5.2 billion,” Bela Tarcsay predicts.