At the end of the 1st half year the volume of investment transactions in commercial properties in Berlin came to a total of €1.9bn. “Compared with the start of the year, the market has perked up quite a lot thanks to several individual sales of big-ticket properties, but it is not as vibrant as it was this time last year. The 34-per cent drop is primarily caused by the shortage of properties,” says Holger Michaelis
, managing director of Grossmann & Berger Berlin.
Outlier: Interhotel portfolio
Most investor interest was directed towards properties in the Mitte and Mitte 1a sub-markets. Mitte accounted for some 37% of the volume of transactions (€701.1m), Mitte 1a for some 30% (€566.2m). The main reason for this result was FDM Management’s purchase of the Interhotel portfolio from a consortium consisting of Brookfield and Starwood Capital; hotels in the portfolio include the “Park Inn by Radisson” (Alexanderplatz 7, Mitte) and “The Westin Grand Berlin” (Friedrichstrasse 158-164, Mitte 1a). The Periphery East sub-market lost market share from 25% at the close of the 1st quarter to 10% (€186.2m).
Prime returns slide less rapidly
In the 1st half-year office properties were again the most traded assets, comprising 48% of the volume of transactions. Due to the impact of the previously mentioned outlier, i.e. the sale of the Interhotel portfolio, investor interest shifted from retail buildings, which accounted for 6% of the total traded, to hotel investments which made up 29%. These two big-ticket sales also ensured that portfolio trades made up 45% of the volume of transactions in Berlin.
“For some of the properties on the market three rounds of bidding were held. This pushed the price to annual rent multiples up further, although the rises were much gentler than a year ago,” says Ulrich Denk
, investment consultant and researcher at Grossmann & Berger Berlin. Against this backdrop the prime yield for office properties fell by 80 basis points within the space of a year to 3.8%, the prime yield for retail real estate also dropped 80 basis points to 3.7%.
Still attractive for international players
A majority of investors in Berlin’s commercial property market - responsible for 76% of the transaction volume - came from outside Germany. Owing to the Interhotel transaction, asset managers made up the biggest section of international actors. International players were also very active sellers of Berlin real estate, accounting for 56% of the sales volume.
Half of transaction volume attributable to asset managers
Since the Interhotel portfolio was bought by asset managers, their share of the volume of transactions reached 49%, whereas opportunity/equity funds were the biggest group of vendors with a share of 40% of the market. Discounting this outlier, private investors were the most active buyers of property (12%) and asset manager the most active vendors (14%) in Berlin.
Outlook: 2nd half of 2016
“Being the capital of Germany, international investors will focus more intently on Berlin because Brexit now increases the risks of making investments in Great Britain. Increased competition could send prices even higher,” says Michaelis
. A lack of properties could hold the market back, so that the likely volume of transactions for the year is €5.0bn and thus below the record set in 2015.
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