- Large-volume portfolio deals bring transaction volume to €6.3bn at the end of Q3
- Retail reclaims position as second-strongest asset class
- Retail warehouses and retail parks prove dominant retail format with record market share
- Yield compression for retail warehouses continues, portfolio premiums significant
- Year-end results will depend heavily on investment opportunities
Munich, 6 October 2021 – According to Colliers, German retail properties changed hands for €6.3bn in the first 9 months of 2021. Activity in Q3 2021 accounted for roughly €3.6bn, or 57%, of this transaction volume and exceeded the total market in terms of momentum following a very quiet H1 with a threefold increase in volume compared to Q2. Retail assets managed to increase their market share from 12% to 16% within just 3 months and reclaimed their position as second-largest asset class from the logistics segment, which came in a close third at 15%.
Matthias Leube, CEO of Colliers, comments, “Sentiment in the retail sector showed a promising trend during the summer. The corresponding real estate index recorded double-digit growth rates, stronger than those indicated for other asset classes. According to the ifo Business Climate Index, the retail sector is particularly concerned about goods procurement. Consumer sentiment continues to brighten, however, a trend is also reflected in an increasing propensity to buy. The Gfk consumer climate index was almost back to pre-crisis levels in September.”
Deals involving large-scale food-anchored portfolios fuel Q3 results
Dirk Hoenig-Ohnsorg, Head of Retail Investment at Colliers, comments, “In light of these factors, we were not surprised to see a Q3 rally driven by large-scale deals. Three large portfolios that had been on the market for some time changed hands in Q3 for over €1.7bn combined.” The largest portfolio deal across all asset classes this year to date was the sale of 34 former Real properties for around €1bn. X+bricks acquired the hypermarkets from Russia-based SCP Group following revitalization and long-term re-letting of the properties to leading retail chains. Patrizia sold two food-anchored retail warehouse portfolios. One of these, the Touchdown portfolio, is comprised of 12 food-anchored retail parks with additional anchor tenants from the fast-growing home improvement and DIY segment, the drugstore segment, pet supplies and recreation and sports. The portfolio changed hands for roughly €400m with Meag acting as buyer on behalf of Munich Re and two special funds. Patrizia sold the second portfolio, the Powerbowl portfolio, which encompasses 51 grocery stores, to GPEP for over €300m.
Retail warehouses and retail parks with record market share of over 60%
Fuelled by these 3 major deals, the share claimed by retail warehouses and retail parks in total retail investment volume rose to 62% with €3.9bn in transaction volume this year to date. According to Dirk Hoenig-Ohnsorg, “Deals involving food-anchored retail properties alone account for around €2.5bn, or 40%, of total retail investment volume. If we look back at the 17% share recorded in 2016, we can see that this market segment continues to pursue its steady 5-year climb with increasing momentum.”
Regional diversification of retail warehouse portfolios has also increased the share of properties sold outside Germany’s 7 major investment hubs to 78%. Even tier-2 and tier-3 locations played a minor role with 8%. The share claimed by portfolio deals increased from 32% to 48% within 3 months, clearly exceeding the average across all commercial asset classes, which currently come to 25%.
Highstreet properites including downtown department stores accounted for €1.5bn, or 24%, while the share claimed by shopping centers remained low at 14%, or around €850m.
Pressure on yields in retail warehouse segment continues, portfolio premiums increase noticeably
It is difficult at the moment to detect changes in prime yields for highstreet properties and supermarkets due to low transaction activity. We can expect achievable yields in the country’s top 7 markets, which currently average at 3.20%, to continue to rise slightly in the foreseeable future. Yield compression continues on prime yields for retail warehouses and retail warehouse portfolios, which are currently trending well below the 5.00% mark. Dirk Hoenig-Ohnsorg comments, “Portfolios, particularly those in the food segment, experienced further yield compression of 0.5% to 1.5% in Q3 based on their size.”
Open-ended real estate funds and special funds continue to dominate buy-side
The market is currently dominated by 3 investor groups buy-side. Asset and fund managers claim first place with €1.5bn in transaction volume, or a market share of 24%, followed by listed property companies such as x+ bricks with €1.3bn (21%) and open-ended real estate funds and special funds with €1.2bn (18%). Asset and fund managers also took first place sell-side (€1.5bn, 25% market share) ahead of opportunity/private equity funds (€1.2bn, 20%) and property developers (€1.0bn, 17%).
Foreign investors remained significantly underrepresented with a market share of 24%. No foreign investors were involved buy-side in the 3 large-scale deals signed in Q3. Dirk Hoenig-Ohnsorg adds, “However, we do know from current advisory mandates that foreign investors are definitely expressing interest in German local amenities retailers.”
Outlook:Year-end result likely below €10bn
According to Dirk Hoenig-Ohnsorg, “Year-end results for 2021 are difficult to forecast in view market activity being volatile and heavily dependent on investment opportunities. Transaction volume is currently limited by a scarcity of core assets, especially in the retail warehouse segment. Although a number of major deals are still being negotiated, we cannot as yet say whether these will be signed this year. As such, we expect to see an annual result of under €10bn.”