Ignaz Trombello, Head of Investment at Colliers International Germany, said: “The market continues to benefit from the current general conditions characterized by low interest rates, the lack of alternative investment options, the focus of many investors on finding a “safe harbor,” and Germany’s comparatively high economic stability. This combination of factors made certain that both domestic and foreign investors were in the mood to buy during the summer months as well, investing more than €6 billion in German commercial real estate between July and September.”

The share of portfolio sales at the end of Q3 was recorded at almost €4.6 billion (24%), a considerable year-on-year increase. Cerberus Capital Management purchased the Monsoon portfolio, comprised of 10 Kaufland stores, for some €224 million, making a significant contribution to these results. Other deals in Q3 included a package comprised of three shopping malls in Berlin, Hamburg and Ingolstadt that Redefine International purchased for some €189 million and a portfolio comprised of six logistics properties purchased by Prologis for €163 million.

Familiar real estate preferences: Office ahead of retail
Although the retail property market share showed a slight year-on-year increase to 30 per cent, with a transaction volume of more than €5.6 billion, office properties continued to be favoured by investors at €8.3 billion (a 43 per cent market share).

“Interestingly, those who purchased office property in Q3 focused on the real estate centers of Berlin, Frankfurt am Main, Hamburg, Munich and Stuttgart. €6.7 of the €8.3 billion were invested in these six cities,” Trombello said. “Outside of the top locations, investors showed particular interest in retail and logistics properties. The latter was the third-favorite property type throughout Germany with a transaction volume of €1.7 billion (a 9% market share).”

Insurance companies, pension funds and superannuation schemes up investment volume
High-volume purchases gave open real estate funds and special funds, in particular, a market share of 25 per cent at the end of Q3, or an investment volume of a solid €4.7 billion. Private investors and family offices were also very active, investing around €2.4 billion (a 13 per cent market share). Insurance companies, pension funds and superannuation funds also invested significantly more in real estate than they did a year ago, investing a total of around €2.6 billion directly or indirectly via special funds.

“One reason for this increase is the fact that it is becoming more and more difficult for companies from these industries to find attractive interest rates for their investment capital,” said Trombello.

Core locations: Popular and in demand, but pricey
Around €10.6 billion, or more than 55 per cent of the transaction volume generated so far this year throughout Germany was invested in the six real estate centers analyzed, a year-on-year increase of 32 per cent.

Trumpp said, “The majority of investors in the top locations continue to focus on established locations and core properties. Second-tier locations have not yet been able to benefit extensively from high demand. Although prices are high, investment activity in most cities has been more lively than it was at this time last year.”

Even without any outstanding single transactions, Munich reported by far the highest number of sales with around €2.5 billion (+10% year-on-year). This was slightly ahead of Berlin with €2.3 billion (+20%) and Frankfurt with €2.2 billion (+107%). Colliers also recorded a considerable increase in Dusseldorf (€1.1 billion), where the largest deal in Germany was closed with the sale of the Kö-Bogen complex at the beginning of the year, and in Hamburg (€1.8 billion) at 126% and 44%, respectively. Stuttgart was the only city to experience a decrease (37 per cent), which nevertheless still resulted in an above-average €653 million. This decrease can be attributed to the high previous year results, which were particularly influenced by the sale of the Milaneo complex. High demand was reflected in the top yield levels, which remain low. Munich and Hamburg were the most expensive cities, where top yields for prime office properties were 4.25% and 4.70%, respectively. Berlin (5.00%), Dusseldorf (5.10%), Frankfurt (5.15%) and Stuttgart (5.2 %) were somewhat less expensive.

Outlook: Possible transaction volume of up to €30 billion
Ignaz Trombello, said, “Indicators point to lively market activity with a high transaction volume forecasted for the final fourth quarter. The three upcoming single and portfolio transactions alone have a combined volume of more than €1 billion which may lead to a total annual result of up to €30 billion.

“Lack of supply means the market is unable to meet current demand and some investors are therefore looking to change their investment strategy. More and more investors are considering second and third tier cities as well as value-added properties as investment options. The number of international investors is expected to increase by the end of the year as well.”