October 20, 2011, Munich – Interest in German commercial real estate remains high among both German and international investors. “Total transaction volume up to the end of the third quarter came to just under 16.8 billion euros, more than 27 percent above the previous year’s result,” says Andreas Trumpp, Head of Research at Colliers International in Germany. “The quarterly results have been very balanced thus far, fluctuating between 5.4 and 5.7 billion euros,” he adds. About 31% of the transaction volume registered between January and September (€ 5.2 billion) came from portfolio sales. International investors invested some €6.6 billion in Germany during this period, making them responsible for about 40% of the investment volume. Approximately €7.0 billion, or about 42% of the transaction volume, was registered in the country’s six top locations: Berlin, Düsseldorf, Frankfurt, Hamburg, Munich, and Stuttgart.
Demand for retail properties remains highest
Retail real estate, which had already drawn investors’ focus in the first two quarters of the year, was still far ahead of all other uses at the end of the third quarter. Overall, investors invested about €7.9 billion, or nearly 47% of the transaction volume, in retail properties. Demand for office properties increased slightly in the third quarter, but still trailed at some distance in second place, accounting for approximately 28% of transaction volume (just under € 4.8 billion). The sale of the Deutsche Post real estate portfolio, which Dundee International REIT purchased in the third quarter from a Lone Star fund for over € 700 million, pushed the investment total for mixed-use properties to about € 1.5 billion, or almost 9% of the overall transaction volume. At the same time, this portfolio sale is among the biggest deals of this year. The year’s top ten transactions also include the sale of an 80% share in the Skyline Plaza shopping center project, in Frankfurt, by CA Immo Deutschland and ECE to Allianz Real Estate. The volume of the overall project has been assessed at € 360 million.
Open-ended real estate funds and special real estate funds invest the most
Open-ended and special real estate funds accounted for some 19%, or nearly €3.3 billion, of the transaction volume by the end of the quarter. “At the same time, investors with riskier investment strategies were also very active on the investment market, spending a total of about €2.9 billion on purchases,” Trumpp points out. Project developers and closed-ended real estate funds follow, with approximately €2.1 billion invested by each group. The sale of the Deutsche Post real estate portfolio to Dundee International REIT ensured that REITs accounted for an above-average share of over 7% of transaction volume.
Transaction volume doubles in Frankfurt
“Compared with last year’s figures, transaction volume in the six top locations rose by some 9%, to about €7.0 billion,” Trumpp says. “On the back of a number of larger sales, transaction volume in Frankfurt doubled year on year, rising to just under €2 billion,” he adds. In Munich and Hamburg, each of which saw investment of about € 1.5 billion in commercial real estate, the rates of increase over the previous year’s figures were quite noteworthy, at 45% and 50%, respectively. Figures in Düsseldorf ( 26%), Stuttgart
(-29%), and Berlin (-47%), by contrast, fell short of last year’s levels. In Berlin’s case, the major factor responsible for the sharp decline in volume was the lack of major transactions like those that took place in 2010.
Yields largely stable
Prime yields for first-class office properties are holding steady when compared with the previous quarter, with the exception of Stuttgart, where a decline of 20 base points was noted, from 5.40% to 5.20%. Munich (4.50%) and Hamburg (4.70%) are the most expensive locations, followed by Berlin (5.00%), Frankfurt (5.20%), and Düsseldorf (5.25%).
Forecast and outlook: transaction volume of €22 billion possible
“Based on a noteworthy number of larger transactions currently reaching the final stages of negotiations, we assume that the total transaction volume reached by the end of the year will be toward the upper end of the forecast we made at the start of the year, of 20 to 22 billion euros,” Trumpp says in summary. Some factors do, however, tend to dim the outlook, particularly the concerns regarding the stability of the euro, high government debt, and the slackening global economy. If the financial and national debt crisis deepens, it is likely that larger real estate transactions in particular will become more difficult to finance, and that investors will increasingly focus on core properties.