The market for commercial property investments in Berlin went into overdrive at the end of last year and showed few signs of slowing down in the 1st quarter of 2017. Compared with the 1st quarter of 2016, the volume of transactions doubled to €1.38bn. “Many transactions that were in the pipeline in 2016 were finalized this year, which explains the uncharacteristically good first quarter”, explains Holger Michaelis
, managing director of Grossmann & Berger Berlin, member of German Property Partners
(GPP). “The market will continue to grow well. It looks as if the final volume of transactions will be similar to last year’s result of 5.0 billion euros, and thus well above the ten-year average of 3.9 billion euros.”
Two sub-markets report total transactions of more than €200m
In the 1st quarter of 2017 Grossmann & Berger Berlin noted five sub-markets in which the transaction volume exceeded €100m, and two of these posted more than €200m. Periphery South was the most popular sub-market, with a share of total investments in commercial properties of some 23% (€311.8m). Essentially, this was due to the former “Vattenfall Building” at Puschkinallee 52, which the Federal real estate corporation, Bundesanstalt für Immobilienaufgaben (BIMA), purchased from Taunus Holding. The second biggest sub-market was Friedrichshain, which took a share of some 21% (€285.7m). One transaction alone, the sale of the Zalando headquarters on Valeska-Gert-Strasse, which Capstone Asset Management bought from UBM Development, accounted for €196m. Three sub-markets recorded shares of between 13% and 11% each; Wilmersdorf reported €172.5m, Kreuzberg €162.8m and Mitte 1a, the sub-market that generally sees most investment activity, posted €146.3m.
Hotels and manufacturing/industrial properties also in demand
Investors showed a clear preference for big office properties. Therefore the office sector accounted for some 74% of total transactions (€1,026.7m). Hotels were the second most popular asset class among investors and several big-ticket transactions pushed hotel properties’ share of the total market to 11% (€151.8m). This quarter, because Blackstone/M7 had acquired the Hansteen portfolio, manufacturing and industrial property assets accounted for about 5% of the total (€67.6m), just ahead of retail properties with some 4% (€48.3m).
Prime yields slide less rapidly
At the end of the 1st quarter of 2017 the prime net yield* on both office properties and mixed business premises in Berlin was somewhere between 3% and under 4%. For both classes of assets, yields fell by 30 basis points within the space of one year. For offices, the figure was 3.2%. Mixed business premises returned 3.0%. “The situation on the market is now such that yields will continue to fall, but certainly much less rapidly than before”, predicts Michaelis
International and national buyers equally active
Whereas in the same quarter of 2016 international investors were behind 75% of the total volume of transactions in Berlin, activity in the 1st quarter of 2017 was evenly split between international and national players. International players were more often to be found as vendors instead, their share of the market rising from 33% to 63%. International asset managers and opportunity funds were especially active in Berlin. “Even though it was obvious that appreciably less international capital was spent on commercial real estate in Berlin during the first quarter, it is too early to identify this as a turning point. Investors with an international background continue to take great interest in Germany’s capital city,” remarks Ulrich Denk
, investment consultant and researcher at Grossmann & Berger Berlin.
Asset managers are biggest buyers
The biggest single group of investors was comprised of asset managers with a share of some 40 % (€556.1m) of the transaction volume. The public purse and open-end funds posted considerably lower shares of around 16% (€222.2m) and 15% (€212.5m). The disproportionately large share of spending by the public purse was due to the previously described purchase of the “Vattenfall Building” by the Federal corporation BIMA.
Fund managers account for half of sales
Open-end/specialist funds (€317.4m) and opportunity/equity funds (€296.7m) sold almost equal amounts of property investments, with a share of 23% and 22% of the total respectively. Developers (€251.2m) and banks (€231.8m) were responsible for double-digit shares of the trade in commercial properties, accounting for 18% and 17% respectively.
“The limiting factor on the Berlin market is now property itself, as the market is still awash with cash for investment. Moreover, we are noticing that in view of the multiples currently demanded, investors require definitive answers to almost all their due diligence queries,” says Michaelis
summing up the situation.
*The prime attainable yield is the initial return that may be made on a property that has been let on normal market terms (tenants with good credit ratings), has top quality structure and fit-out, and stands in one of the very best locations. It is stated as net initial yield in per cent, i.e. the ratio between the annual rental income less non-apportionable ancillary costs and the gross purchase price (net purchase price plus land acquisition tax, entry in the land register, notary fees and agency commission).
The detailed market survey will soon be available and can be downloaded from our website