Invest Berlin 3Q2016

Lack of properties and high demand drive yields to all-time low

Press release | Berlin

Figures for the Berlin market compiled by Grossmann & Berger Berlin showed a transaction volume of around €3.35bn by the end of the 3rd quarter of 2016. Year on year, investment activity fell by some 24%. The 1st quarter result of €680m was followed by €1.22bn in the 2nd quarter and business gathered further momentum in the 3rd quarter, returning a total of €1.45bn. “The record result returned last year is almost certainly out of reach. The seven transactions recorded so far for over 100 million euros each cannot fully replace last year’s sale of the Potsdamer Platz Quartier portfolio of properties,” says Holger Michaelis, managing director of Grossmann & Berger Berlin.
More investment in the peripheries
In the first three quarters investment activity was concentrated on the Mitte and Mitte 1a sub-markets, which each accounted for 22% of the volume of transactions in Berlin. There was thus little change from the prior year’s figures of 20%. So far the biggest transactions in these sub-markets have been the 2nd-quarter sale of the two hotels “Park Inn by Radisson Berlin Alexanderplatz” (Alexanderplatz 7, Mitte) and “The Westin Grand Berlin” (Friedrichstrasse 158-164, Mitte 1a), bought by FDM Management from Brookfield Properties and Starwood Capital.
In the first nine months of the year 2016 the sub-markets Periphery South and Friedrichshain benefited from the enormous demand for investment properties in Berlin. “The shortage of real estate available in inner city locations is increasingly causing investors to focus attention on neighbouring areas and in so doing, they are following the trend in the office letting business,” remarks Ulrich Denk, investment consultant and researcher at Grossmann & Berger Berlin. The Periphery South sub-market abuts the central sub-markets of Kreuzberg and Friedrichshain; it accounted for 14% of the transaction volume thanks to the biggest sale ever registered here, namely that of the “Treptowers” ancillary buildings in Treptow (An den Treptowers 3), for which Blackstone paid Alstria Office Reit AG some €230m in the 3rd quarter; Friedrichshain recorded a share of 10%.
Prime yields sink to all-time low
As seen in previous years, during the first nine months of 2016 investors focussed their attention on office buildings, which accounted for some 57% (€1.92bn) of the total volume. Other asset classes trailed behind, hotels made up 14% (€475.7) of the total, retail 13% (€428.8m) and commercial building land 10% (€335m). Essentially, this distribution of assets was due to the previously named sales of the “Park Inn” and “Westin Grand” hotels, and the absence of any large-scale retail property transactions.
In view of the enormous excess of demand over supply coupled with massive amounts of surplus cash, the prime yields on office properties sank year on year by a further 50 basis points to 3.7%, while the prime yield on retail assets fell by 40 basis points to 3.3%.
Asset managers are big buyers
Accounting for 36% of the transaction volume (€1.21bn), asset managers were the most prominent buyers on the market. This was mainly attributable to the large number of transactions for big-ticket office buildings and hotel properties. Three groups - the opportunity/equity funds, open-end funds and developers - were far less in evidence, taking roughly equal shares of the market at around 9% each (€310m). Opportunity/equity funds comprised the single biggest group of vendors, with a 22% share of the volume of transactions (€727m), followed by closed funds with a share of 16% (€536m) and asset managers with 15% (€492.50m).
International players involved in two thirds of transaction volume
In the first three quarters of 2016 international players dominated the market for commercial property investments in Berlin. They featured as buyers in 66% of the transaction volume and as sellers in 43%. The biggest international investors were asset managers, opportunity funds and pension schemes/funds; the biggest international vendors were opportunity funds, asset managers and project developers.
Because interest rates remain low and, consequently, there are no real alternative forms of investment, no change is expected on Berlin’s investment market between now and the early part of 2017. “Numerous big-ticket properties are still on the market and sales should be completed by the end of the year. Therefore we expect to see the market develop very well between now and the end of December to close the year with a total result of about 5 billion euros. However, no transaction this year will match the outlier sale of the Postdamer Platz Quartier which boosted last year’s result to a record 7.8 billion euros,” forecasts Michaelis.

The detailed market survey will be available for download on the G&B-website shortly.

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