Retail properties generated the highest transaction volume on the commercial investment market in Germany in 2011.
January 25, 2012, Munich – “In total, investors invested about 9.8 billion euros in retail properties. That works out to 42 percent of the total transaction volume,” says Andreas Trumpp, Head of Research at Colliers International Germany. “By comparison to last year, that means almost 43 percent more was invested in this type of property. Within the retail segment itself, shopping centers accounted for about 4.9 billion euros, some half of the total amount invested,” he adds. Just under one-third of the transaction volume (approximately € 3.1 billion) was generated as part of package sales. Foreign investors accounted for 44% of the total, or about € 4.3 billion.
Major sales shape the retail market.
Seven of the ten largest sales of the year 2011 involved retail properties. “The only transactions that made it into the top ten without involving major retail properties were the Deutsche Post portfolio of mixed-use properties and two office tower properties in Frankfurt: the Green Towers and Silberturm,” Trumpp says. The two Metro portfolio sales finalized in the first quarter of the year, at over € 700 million, and the sale of a 50% share in the CentrO shopping center, in Oberhausen, were joined in the fourth quarter by another two very large transactions. In one of them, the American pension fund TIAA-CREF purchased the PEP shopping center, in Munich, for about € 410 million. The property, which encompasses approximately 60,000 m² of leased space, was acquired from the open-ended real estate fund Grundbesitz europa, managed by RREEF. The other major transaction, the sale of the Gropius Passagen, in Berlin, also shaped the market, at € 341 million. A closed-ended fund operated by WealthCap sold the shopping center, with its 85,000 m² of space, to mfi.
Shopping centers account for lion’s share of transaction volume
Due mainly to large-volume individual sales (such as those involving the CentrO, PEP, Gropius Passagen, Skyline Plaza, and Hamburger Meile properties), shopping centers accounted for some € 4.9 billion, or nearly 51% of the total transaction volume, far ahead of other property types. Department stores in city center locations and commercial buildings in prime locations together accounted for some € 2.3 billion, or 24% market share, followed by specialized retail centers and retail stores, at about € 2.2 billion, or 23% market share.
Open-ended real estate funds and special real estate funds most active group of buyers
Open-ended and special real estate funds secured retail properties totaling about € 2.7 billion in 2011, for market share of 28%. “Investors with a more risk-oriented investment focus were not far behind, though, buying German retail properties for just under 2 billion euros,” Trumpp says. “These investors remain convinced of the stability of Germany on the whole and the German retail sector, and they see good opportunities in this country in purchasing properties that need optimization,” he adds.
Prime yields rise further due to high demand
High demand for both shopping centers and commercial buildings and retail properties in city center locations combined with modest supply to push prime yields upward year on year. Shopping centers changed hands at prime yields of between 5.00% and 6.50% at the end of 2011, depending on location. Prime locations were considerably more expensive, with prime yields just shy of the 4% mark in Munich and up to 4.80% in Berlin. “Commercial buildings in prime locations in major German metro areas are right at the top of the shopping list for safety-oriented investors, such as private investors and family offices. Most of the current owners are not willing to sell these properties, though,” Trumpp explains.
Outlook: interest in retail properties to remain high
Although overall economic conditions have dimmed to an increasing degree recently, positive news from the German labor market and noticeable wage increases have created a stable consumer climate. This is one of the factors that will keep investments in German retail properties highly attractive. “Two factors are expected to continue to limit transaction activity: low supply, especially in the core segment, and banks’ modest willingness to provide financing,” Trumpp says. “Nonetheless, we expect activity on the market to be brisk in 2012 due to the large number of large-volume sales that are in the preparatory stages,” he adds. Shopping centers in particular, but also specialized retail centers, will continue to enjoy tremendous popularity. In the specialized retail center segment, properties priced at between € 15 and 35 million with ten-year leases are in especially high demand at present.