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Office investment in secondary and tertiary cities remains high in H1 2020 despite pandemic

    • Office transaction volume in the first six months of the year just short of previous year’s peak at over €2bn
    • Secondary and tertiary markets characterized by medium-sized transactions
    • Takeovers contribute to increased portfolio share
    • Outlook: Office assets in secondary and tertiary cities more popular than ever in the wake of pandemic restrictions with many investors looking to buy


    Munich, 28 July 2020 – Office assets in Germany’s secondary and tertiary cities were in high demand in H1 2020. According to Colliers International, office properties changed hands for slightly over €2bn, reflecting only a slight yoy decrease of 12% and exceeding the 5-year average by 23%. Office assets proved by far the most significant asset class in secondary and tertiary cities with a market share of 47%, well above the national average of 42%.

    Michael R. Baumann, Head of Office Investment B&C Cities at Colliers International, comments, “Investors are attracted by the robust market conditions to be found in many secondary and tertiary cities. Office leasing markets in many of these cities are characterized by low vacancy, and construction activity dedicated to the latest standards and high pre-leasing rates make them very resilient in times of crisis. Because of this and as seen in previous years, secondary and tertiary cities are becoming increasingly important as an addition to primary markets, where yield compression is quite advanced. This trend is reflected in mid-year results as well. Investors chose to follow through on many deals and bring them to a close despite the restrictions put in place due to the pandemic. We did, however, see the pace slow and transactions tended to be subjected to more extensive analyses.”

    Nuremberg, Leipzig and Wiesbaden lead the ranks in terms of transaction volume
    Nuremberg recorded the highest number of office deals among the country’s secondary and tertiary cities with total H1 2020 transaction volume at €267m. Leipzig (€237m) and Wiesbaden (€233m) followed closely in the ranks with Dresden (€171m) and Mainz (€129m) completing the top 5. Nine secondary and tertiary cities exceeded the €100m threshold in H1 2020.

    Yields stable for the moment despite pandemic, significantly outperforming top 7 cities
    German’s secondary and tertiary cities posted yields significantly higher than the average yield recorded in the country’s 7 major investment hubs of just over 3.00%. Wiesbaden and Mainz (3.70% each), Nuremberg (3.75%) and Mannheim (3.80%) recorded the lowest yields. Dresden and Leipzig also came in below the 4% mark at 3.90%. “We have not seen any decreases in the core segment and expect prime yields to remain stable or even drop slightly in some cities,” Michael Baumann predicts.

    Takeovers contribute to increased portfolio share, scattered high-volume deals
    Although portfolio deals involving office assets in secondary and tertiary cities tend to be rare, they made a comeback in H1 2020. The share generated by portfolio deals rose to 37%, or around €750m, putting it well above the 5-year average of 25%.

    This can be largely be attributed to Aroundtown’s takeover of the TLG portfolio in Q1, which included several office assets located primarily in secondary and tertiary cities in eastern Germany. Several office portfolios involving assets in secondary and tertiary cities also changed hands, including JP Morgan’s acquisition of three office assets held by the Aspen Group and IMAXX AG’s purchase of 10 assets owned by a French insurance company.

    Single-asset deals dominated market activity with almost €1.3bn and a market share of 63%. The largest deal signed to date involved an office property at Frankfurter Straße 50 in Wiesbaden. The building was recently let to the BKA German Federal Police Office and was acquired by GEG for €133m from DIC Asset AG. Another single-asset deal of similar volume was the sale of the Auf AEG revitalization project in Nuremberg. Within the scope of the deal, MIB Coloured Fields sold around 50,000 sqm of office space to Catella for roughly €130m. Other high-volume transactions included the sale of the University of Applied Sciences for Police and Public Administration new-build located in Duisburg in North Rhine-Westphalia. REInvest Asset Management bought the asset from property developer Aurelis. Rheinkontor in Mainz, which LBBW sold to Wealthcap, was another high-volume deal recorded in H1 2020.

    Small and medium-sized assets dominate market activity
    Don’t let these large-scale transactions fool you. Deals of this size occur much less frequently in secondary and tertiary cities than in Germany’s top 7 investment hubs. Office stock there in these smaller cities dedicated to small to medium-sized buildings. “Assets need to match the relevant office stock and promise liquidity in terms of volume,” comments Michael Baumann. As such, 82% of the assets that changed hands in H1 2020 went for under €100m. 55% of transactions changed hands for between €30m and €100 and 27% of the assets went for even less.

    Risk classes: Core and core+ segments in high demand
    Investors in secondary and tertiary cities tend to primarily focus on low-risk assets. High-value core assets generated more than €1bn in H1 2020 with a market share of 51%. The German average stood at 27%. Core+ assets with average management requirements followed in the ranks with roughly €630m, or 32%. Value-add assets are particularly attractive when located in secondary and tertiary cities characterized by demand that is diversified and crisis-resilient. Assets worth around €330m boasted this risk profile in H1 2020. Their market share of 17% was significantly below the German average of 26%.

    German investors dominate secondary and tertiary markets
    Foreign investors were able to boost their market share primarily thanks to the TLG takeover by Aroundtown. Market activity was evenly distributed with German and foreign investors each claiming around €1bn in transaction volume. German investors came in slightly ahead, however, with a market share of 51%. Foreign investors exceeded their 5-year average of 30% by a considerable margin,
    but proved less dominant sell-side. In terms of sell-side activity, foreign investors disposed of assets for around €260m, reflecting a market share of 13%. As such, German investors remained the dominant market force sell-side with almost €1.8bn (87%).

    Listed property companies and open-ended real estate funds and special funds most active buy-side
    Transaction activity was dominated by the three largest buyer groups in H1 2020. As a result of the TLG takeover, listed property companies took the lead with around €650m and a market share of 32%. Open-ended real estate funds and special funds as well as asset and fund managers followed in the ranks neck-and-neck with around €470m (23%) and roughly €460m (22%), respectively. Property developers acquired assets for roughly €150m.

    Property developers and listed property companies most active sell-side
    Listed property companies also claimed pole position sell-side with around €640m (32%). Property developers, which were more active in previous years, accounted for a similar market share (31%). Open-ended real estate funds and special funds came in third with around €210m and a market share of 10%.
    Colliers survey: Secondary and tertiary cities more popular among investors than before the crisis with office and core assets in high demand
    Link to survey

    Colliers International Deutschland has surveyed top-level decision-makers in the real estate industry regularly since March 2020 on the impact the pandemic is having on the German real estate market. In July 2020, investor opinion became more definitive and confirmed several trends currently shaping the market. 94% of companies surveyed have resumed investment activity with only 6% still maintaining a wait-and-see stance. Despite some investors hoping for more favorable conditions, we have yet to see noticeable price reductions triggered by the pandemic.

    Secondary cities continue to attract investors and were able to resume their steady upward trend despite an initial slump. While only 51% of investors surveyed were looking to invest in secondary cities prior to the crisis, this percentage climbed to 70% in July. Smaller tertiary and quaternary markets proved quite stable. Investors continued to pursue their investment profiles, with no slumps in activity recorded as a result. One out of every 5 of those surveyed were looking to invest in this segment.

    Office assets remain particularly popular among investors with 93% interested in investing in this segment, up from 88% pre-crisis. Core assets are especially popular as they continue to boast prices in line with high pre-crisis levels. 70% of those surveyed plan to continue investing in core assets, 13% more than before the crisis.

    Outlook: Dynamic H2 2020 characterized by strong demand

    “The first six months of the year have shown that office assets in secondary and tertiary cities have become well-established on the German real estate market. Demand for crisis-resilient investments in secondary and tertiary cities has increased significantly in recent months. As a result, many investors continued to pursue transactions during the lockdown and market activity has increased significantly since the restrictions were lifted. Despite increased costs for financing, pressure to invest remains high among investors, which is why we expect to see lively transaction activity in H2 2020. However, 2020 is unlikely to match the previous year’s record result of €5.3bn by year-end,” concludes Michael Baumann.

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Michael R. Baumann

Head of Office Investment B & C Cities | Germany | Senior Director


Michael has been part of the investment team at Colliers since October 2005. Before that he was working for the international investment department at Colliers CSL in Zurich for 2 years.


After his education in structural engineering he worked in Graz, Austria, in the domain construction management/project management. Afterwards he studied Business Studies/Real Estate at the university of Biberach, Germany, and Real Estate Management at Nottingham Trent University, England.


Having stayed in several countries (e. g. studies in England, internship in Trinidad & Tobago, business events in Singapore etc.) he has gained a lot of experience and has a very good national and international network.

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Marc Steinke

Associate Director


Marc joined Colliers International in 2018 as a Research Analyst. He was responsible for monitoring and analyzing the national investment and letting markets with a focus on office, retail,  hotel and B&C cities.

Since 2021 Marc works for the Berlin office of Colliers. He supports capital market transactions, pitches, buy-side advisory and letting deals in the german capital. He also writes market reports and works on client studies .

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