- Colliers publishes third report on scope and risk profile of foreign investment activity in Germany
- Cross-border transactions remain strong despite slight dip
- Foreign investors continue to dominate high-volume market segment
- EMEA again only region worldwide to record yoy increase in transaction volume
- APAC expected to post positive increase by year-end due to high-volume deals in the pipeline
- While APAC predominantly remains a low-risk region, the Americas and EMEA show a diversified risk profile
Frankfurt/Main, 22 October 2019 – According to Colliers International, €43.6bn were poured into German commercial real estate in the first nine months of 2019, surpassing the previous-year record by 5%. A transaction volume of €18.7bn was posted in Q3, the second best single-quarter result of all time, topped only by Q4 2016 with €20.2bn. Matthias Leube, CEO of Colliers International Deutschland, comments, “In light of the well-stocked pipeline, we expect to see another end-of-year rally. Taking into account numerous high-volume transactions that have been in the deal pipeline for quite some time, total transaction volume at year-end is very likely to once again reach the €60bn threshold and even exceed last year’s record result of around €61bn. We expect this trend to continue well into 2020 and bring in another exceptional result.”
The total share claimed by foreign investors leveled off at around 38% in the first 9 months of the year, down just 2% yoy to €16.4bn. Foreign investors were particularly active in terms of high-volume single-asset and portfolio deals.
EMEA real estate investors increase market share
With respect to the origin of capital flows in terms of region, EMEA (Europe, Middle East, Africa) once again ranked first, accounting for around two thirds of capital poured into Germany or around one quarter of the total transaction volume registered in the first 9 months of the year. EMEA accounted for €10.3bn in transaction volume, reflecting a 3% increase yoy, making it the only region to record an upward trend. The main drivers behind this trend among the European investment nations were the UK with €2.6bn, or a market share of 6%, in 1st place, followed by France with €1.9bn, or a market share of 4%. Both countries managed to increase their investment volume by just over 50% yoy. Austria came in 3rd with €1.8bn and a market share of around 4%.
“The largest deals involving Austrian and French investors each exemplify a new investment trend that is going to gain importance due to lack of supply and the excess liquidity currently dominating the market. Investors are starting to acquire or invest in companies holding large property portfolios. The two-phase, multibillion sale of the Kaufhof portfolio by Canadian Hudson’s Bay Company and its joint-venture partners to listed Austrian property company Signa and the 13% share in Signa Prime acquired by PSA are prime examples of this trend. There were a number of traditional direct property transactions as well including the sale of Siemens Legoland to Aroundtown acting on behalf of Israeli investors and the purchase of the Ypsilon logistics portfolio by an investor group led by Greenoak.
Christian Kadel, Head of Capital Markets at Colliers International, comments, “As is particularly the case in the latter deal, real estate investors continue to use the UK with its globally active institutional buyers as a gateway to Europe. Germany has increased its status as a safe investment haven not least due to Brexit. With the current investment cycle peaking all over Europe, German assets in the Big 7 remain competitive compared to other European cities and particularly compared to Paris. The high volume of cross-border investments within Europe can be primarily attributed to high pressure to invest and low capital costs thanks to the ECB’s ongoing low interest rate policy.”
EMEA-based investors proved more willing to take risks for the sake of adequate yields than Asian investors. “Overall, capital allocation to the individual risk classes was significantly more balanced with the core+ segment accounting for 45% followed by core investments at 29%,” continues Christian Kadel. The value add/opportunistic segment also played an important role with a share of 27%. In comparison, no notable investments were made by investors from the APAC region in this risk category during 2019.”
US remains strongest single nation despite drop in investment volume
The Americas continued their negative trend for the second year in a row with a decrease of 15%. While Canadian capital accounted for only €260m in 2019, US investors claimed the largest market share of 7.3%, or €3.2bn. “We expected considerably less activity from US investors due to increasing property yields in the US. However, the promise of lower hedging costs thanks to the weaker euro-to-dollar exchange rate continues to make real estate investment in Europe a lucrative opportunity for US investors,” says Christian Kadel. Looking at risk profiles, core and core+ investments claimed a 73% share. Similar to EMEA cross-border investments, value-add investments recorded 27%, reflecting a yoy increase. Office assets in Germany’s top 7 markets continue to enjoy preferred status. Major deals included Blackstone’s acquisition of Oberbaum-City and JP Morgan’s purchase of the B:Hub property development, both in Berlin, as well as the Fritz9 deal in Munich.
Hedging premiums attract risk-averse APAC investors
Investors from the Asia-Pacific region remain highly risk-averse and poured their capital exclusively into core and core+ assets.
APAC investors only played a minor role in terms of transaction volume with only €1.2m, down 37% yoy, while China continues to restrict high-volume outbound property investments. According to Christian Kadel, “Singapore and South Korea currently rank highest among the Asian countries with €730m and €400m, respectively. Real estate investments in Germany tend to be more profitable with respect to financing costs than in these investors’ home countries and total return can be improved with favorable currency hedging. Thanks to a weaker euro combined with quantitative easing as well as low financing costs, we can expect to see an increasing influx of capital from the Asia-Pacific region to Europe and Germany.” The largest transaction of the year was KanAm’s purchase of the Ludwig office property in Munich on behalf of Pacific Eagle, a Singapore-based family office, for a price in the mid-9-figure range.
Outlook: Foreign investors make substantial contribution to strong annual result on German investment market
Matthias Leube comments, “Foreign investors will contribute significantly to another record transaction volume in Q4 2019. Foreign investors are involved in various high-volume portfolio and landmark deals currently in the pipeline, which will boost results primarily in the Big 7.