July 2011, Munich – Over the first six months of 2011, about €5.86 billion was invested in retail properties throughout Germany. This transaction volume puts retail properties far ahead of all other uses. “Overall, this works out to 53% of the total commercial transaction volume in Germany,” says Andreas Trumpp, Head of Research at Colliers International in Germany. “The increase over the comparable figure for last year is over 62%, considerably more than that experienced by the overall investment market, including retail, which was some 24%,” Trumpp adds. Judging by transaction volume, that makes retail properties the favorite among investors. Office properties trail by a wide margin, to come in second at approximately €2.85 billion in transaction volume.
The investment market for retail properties was already dominated by major deals (Corio portfolio, ALEXA shopping center, Ruhr-Park center, etc.) last year, a trend that continued in the first half of 2011. Right away in the first quarter, financial investment firm Cerberus bought up more than 40 Metro Cash & Carry stores for about €700 million. The sale of a 50% share in the CentrO complex, in Oberhausen, to the Canada Pension Plan Investment Board for about €650 million was also crucial in shaping the market. But there were a number of larger sales in the second quarter as well, such as the Highstreet consortium’s sale of three Karstadt department store properties in Hamburg and Münster to Quantum Immobilien, the sale of the Hamburger Meile shopping center to Real I.S., and the sale of the Oberpollinger department store and adjacent Karstadt Sport site in Munich’s pedestrian zone to a joint venture between Signa Holding and the Centrum Group, each of which brought about €250 million. As a result, the ten biggest transactions of 2011 include eight retail properties/transactions and just one office property (the Deutsche Bank Greentowers property), along with the sale of the ING Industrial Fund logistics portfolio.
Among retail properties, shopping centers were the type of property that attracted by far the most capital, at €2.88 billion (representing 49% of the transaction volume in this market segment), regardless of the aforementioned sales of Cash & Carry stores, specialized retail centers and stores, and department stores. “In the overall market, that puts shopping centers on the same level as office properties, which attracted about €2.85 billion in investments in the first six months of this year,” Trumpp says. “Judging in terms of transaction volume, the second most popular use within the retail property segment was specialized retail centers and stores, which accounted for some €1.58 billion, or about 27% market share,” he adds. Retail properties in city center locations, such as business buildings and department stores, were the third most popular class among investors, at nearly € 1.39 billion.
The most active investors in terms of transaction volume at the midyear mark were those with more risk-oriented investment strategies, i.e., opportunity funds and private equity funds, which accounted for a 29% share, followed by open-ended real estate and special funds, at 27%, and then by pension funds, at some 12%. Due in particular to the large-volume transactions mentioned above, foreign investors accounted for about 50% of the transactions, higher than their average share of the overall market, at 38%. Just under 40% of all retail properties that changed hands during this period did so as part of portfolio sales.
Prime yields for top-quality shopping centers currently range from 5.00% to 6.25%, depending on location. “Investments in retail properties and business buildings in city center locations are considerably more expensive. These assets are currently changing hands in Munich, for example, at a prime yield of 3.75% for ideal properties – which are, admittedly, very scarce on the market,” Trumpp says. “Properties of this kind can still be found for less expensive, but not truly inexpensive, prices in Berlin at prime yields of 5.00%,” he continues.
Retail properties have drawn the highest investment volume over the course of the year thus far. “Despite the positive signals being sent by the office leasing market, which will spur demand among investors in this market segment, retail properties, and especially shopping centers, are still a major area of focus for investors,” Trumpp says. “Assuming that the sales of large-volume properties that are currently in the preparatory stages go through, we expect to see retail properties account for the largest concentration of capital at the end of the year as well, due to a number of factors, but particularly the current shortage of alternative new office properties,” says Trumpp, summarizing the current demand and behavior among capital investors.