- €38.3bn in transaction volume recorded in the first 9 months of 2021
- Market recovery thanks to landmark deals in Germany’s top 7 cities and high-volume portfolio transactions
- German investor capital almost back to 2019 record levels
- Office remains strongest asset class as retail and logistics vie for second place
- Stiff bidding competition continues to push up prices in core segment
- Strong final quarter expected
Frankfurt/Main, 6 October 2021 – According to Colliers, properties on the German commercial investment market changed hands for €38.3bn during the first 9 months of the year. Results fell short of the €40bn mark as a result of a sluggish start to the year, a mark that previous years managed to exceed in the same period of time. However, activity in the past 3 months did manage to shorten the distance to the 5-year average from 6% to 3%. The best quarterly result this year to date was recorded in Q3 with €15.3bn, also the third best Q3 result posted in the past 10 years following 2019 and 2018.
Matthias Leube, CEO of Colliers, comments, “Most of the market uncertainty caused by the pandemic is now a thing of the past. In September, the real estate sentiment index returned to the levels recorded prior to the first lockdown. The retail and hotel segments, which have been badly hit by the pandemic, are increasingly taking a more optimistic stance towards the future. Sentiment in the office segment also brightened steadily over the summer months. Market observers consider current peaks in inflation and recent downward corrections of GDP forecasts for 2021 made by leading economic research institutes to be temporary. These developments are primarily being attributed to supply bottlenecks in connection with an extremely dynamic catch-up phase. At the same time, strong growth is expected for 2022.”
Higher volumes, fewer deals - trend towards large transactions continues
Christian Kadel, Head of Capital Markets at Colliers, comments, “This positive underlying sentiment has also been tangible on the investment markets over the past 3 months. The trend we saw in Q2, in which an increasing number of high-volume deals were signed for over €250m, has remained intact. The number of deals registered in this volume segment during the first 9 months of the year (25) is at par with 2019’s pre-pandemic record levels. The number of transactions, however, has dropped by roughly one-fifth across all of the smaller market segments. Evidence of current investor focus on prime assets can also be seen in the list of the top deals signed in Q3.”
The FOUR T1 office tower in Frankfurt’s banking district marks the largest single-asset deal signed in the German office tower segment this year to date. Allianz bought the property from developer Groß & Partner on behalf of a joint venture comprising several companies from the Allianz Group and Bayerische Versorgungskammer for €1.4bn within the scope of a forward deal. The sale of the Skyper office tower and building complex, which is also located in Frankfurt’s banking district, for around €560m was the second-largest single-asset deal signed in Q3. Allianz was involved in the deal sell-side on behalf of a group of affiliated companies and Ampega Asset Management advised several HDI affiliates buy-side. Both deals are representative of an ongoing trend towards the acquisition of landmark properties in Germany’s top 7 investment hubs, which began in Q2 with the sale of Fürst in Berlin’s city center for over €1.25bn as well as 3 large-volume office buildings in Munich, each of which changed hands for over €600m. Large-scale portfolio transactions are experiencing a comeback as well. A portfolio comprised of 34 former Real properties changed hands for around €1bn in Q3 following the sale of the mixed Summit portfolio in Q2. x+bricks purchased the revitalized and newly let Real hypermarkets from Russia-based SCP Group. Overall, portfolio deals recorded a market share of 25% at the end of September 2021.
Results in TOP 7 investment hubs vary
Thanks to these highlight deals, Germany’s 7 major investment hubs accounted for almost €21bn in transaction volume, reflecting a market share of over 50%. Falling a mere 2% short of the 5-year average combined, some of the country’s top 7 cities appear to be benefiting more from the current demand trend than others depending on to available supply. Berlin managed to defend its pole position with €6.9bn, followed by Frankfurt (€4.5bn), which outperformed Munich (€4.1bn) after a sensational Q3 rally. The first 9 months of the year have proven rather quiet in Hamburg due to the absence of landmark deals, with transaction volume under €2.2bn. “Similar to activity in the 3 cities mentioned previously, there is the possibility that several transactions for over €100m could be finalized in Q4, which would fuel market momentum in Hamburg in the final quarter of 2021,” Christian Kadel comments. Both Cologne and Düsseldorf managed to exceed the €1bn threshold in Q3. As such, Düsseldorf fell 42% short of its 5-year average while Cologne has been experiencing a favorable trend with an increase of 10%. Stuttgart’s investment market is also limited by a shortage of core assets and came in 27% short of the long-term average at €823m.
Food-anchored retail portfolios once again put retail ahead of industrial and logistics
Major deals in the high-priced core segment shaped the market and further solidified the status of office properties as the most important asset class. These assets brought in €19.0bn in the first 9 months of the year, reflecting exactly half of total transaction volume. Retail assets (16%) snapped second place from industrial and logistics (15%). “The tight race between the two sectors that benefited from the crisis is largely being fueled by investment opportunities, so it will be important to keep an eye on developments going forward. Specific property types are often the most important drivers for an entire asset class, particularly in the retail sector. Retail warehouses and retail parks, especially food-anchored assets, recorded their highest share in total retail investment to date at 62%. This at least in part compensates for the continued sluggish performance of department stores in downtown locations and shopping centers. Assets in the healthcare and social sector, which currently rank ahead of the established hotel sector (4%) with a market share of 5%, also owe their fluctuating results to limited supply,” says Christian Kadel.
Excess demand for scarce core properties continues to put prices under pressure
Although prime yields remain primarily stable compared to the previous quarter, compression continues to be a factor due to excess demand and stiff bidding competition for prime assets. Prime yields for office assets in premium locations in Germany’s top 7 cities currently range between 2.70% in Berlin and Munich and 3.15% in Cologne. Frankfurt, Hamburg and Stuttgart all posted prime yields of 3.00% while Düsseldorf posted 3.05%. Prime yields for logistics assets again dropped noticeably in top locations throughout Germany, down a further 15 bps to 3.40%.
German investors quick to resume activity
German investors are currently dominating the market with a share of over two-thirds, or €25.8bn. Although the share of foreign investment rose noticeably over the course of the year from 25% in Q1 to roughly 33% by the end of Q3, it remains well below the long-term average of over 40%. Investors from the US claimed first place with a market share of around 8%, or €3.1bn, this year to date, followed by the UK and Austria with 4%, or €2.4bn, each. Investors from the Asia-Pacific region just about managed to reach the €500m mark.
Christian Kadel comments, “Domestic investors were much quicker to resume their investment activity than foreign investors. The pandemic-related restrictions on the market could not yet be fully accounted for in the previous year in which numerous deals were closed that had been negotiated prior to the pandemic. While the drop in investment volume attributable to foreign and German investors in the first 9 months of 2020 compared to the previous year was almost balanced at 17% and 18%, respectively, we are currently seeing a 27% yoy drop, or €4.7bn, in foreign investment activity and an increase of 8%, or €1.9bn, in domestic activity in contrast.
The strongest investor groups, open-ended real estate and special funds and asset and fund managers, continue to go head-to-head, each accounting for a market share of 25%, or €9.6bn. Property developers claimed the top spot sell-side with €9.4bn (25%), ahead of asset managers with €8.6bn (22%).
Outlook: Total 2021 investment volume expected to range between €55bn and €60bn
Christian Kadel comments, “The fact that numerous large-scale deals are expected to be signed in Q4 confirms our forecast of over €55bn in annual results. The €60bn mark remains within reach in view of renewed listing activity after the summer breather. We don’t expect results to exceed this threshold, however, as many transaction processes are proving rather lengthy, particularly outside of the core segment. Larger platform deals, which, as experience in recent years has shown, can have a significant impact on results and require longer lead times, do not appear to be a factor at the moment.”
