Investment Berlin 2Q2015

Capital of real estate investment

Press release | Berlin

Figures from Grossmann & Berger Berlin revealed that the volume of investment transactions in commercial properties in Berlin was some €2.87bn by the end of the 1st half of 2015.
Due to a large number of big-ticket sales and portfolio trades, investments rose by about 130% compared with the prior year. “Within the past three months, commercial properties in Berlin valued at some €1.77bn changed hands. This result far outstrips what was already a good start to the year of €1.1bn. The total is already about three quarters of last year’s final result of some €4bn. Berlin thus joins Munich as the German city now posting the greatest demand for investment-grade commercial property,” says Ulrich Denk, investment consultant and researcher at Grossmann & Berger Berlin.
Large volume transactions in single properties and portfolios
In the 1st half of 2015, the sub-market “Mitte” was the top-ranking market, accounting for 26% of the transaction volume in Berlin. In this sub-market, the two biggest transactions of the quarter involved the office complex “Stettiner Carré”, which was sold by Global Asset Capital to Allianz Real Estate Germany GmbH for around €210m, and the “Galeria Kaufhof” store on Alexanderplatz, sold by Metro AG to Hudson Bay.
The sub-markets on Berlin’s periphery also benefited from the strong demand for investment properties in the 1st half-year. One sign of this positive trend was the biggest investment made in Berlin property, the first-quarter sale of the “Boulevard Berlin” shopping centre on Steglitzer Schloss-Strasse that the French operator Klépierre bought from a Dutch competitor, Corio, for around €370m. Another top transaction was the 2nd-quarter sale of the “Viktoria Lofts” on Schreiberhauer Strasse, Berlin-Lichtenberg, for which I-REIT Global paid Wealth Cap some €144m. One of the 2nd-quarter transactions in a traditional inner-city location was the sale of the last plot of land next to Checkpoint Charlie for some €85m; the buyer, a Berlin investment company, Trockland Management, intends to develop the site with a mix of apartments, shops and a hotel. Also in the 2nd quarter, the “Potsdamer Platz C2-Pfizer” office block (sub-market “Potsdamer Platz / Leipziger Platz”) that formed part of the Odin portfolio in a Credit Suisse fund, was sold to Orion Capital Managers, a London property investor.

Portfolio sales accounted for 43% and single-property sales for 57% of the total volume of transactions. But by actual numbers of transactions during the 1st half-year, sales of single properties dominated the market with 79% of the total volume. Whereas in the same period of the prior year single-property transactions accounted for an overwhelming 85% of the market, single and portfolio sales are now roughly even.
Premium return for retail space drops below 4%
Unlike the first half of the prior year, when practically every investment was in an office property, the proportion of office to retail assets was appreciably more balanced at the end of the 1st half of 2015. Accounting for a share of about 44% (€1.27bn) office properties remained the preferred asset although – thanks to the three biggest retail transactions which added up to €700m – the retail sector’s share of the markets was 36% (€1.01bn). The main reasons for this distribution of investments were the special case whereby Klépierre took over the business of shopping centre operator Corio and the sales of the “Stettiner Carré” and the “Victoriastadt Lofts” – the biggest 2nd-quarter transactions registered to date. In view of the enormous excess of demand over supply coupled with massive amounts of surplus cash, the premium returns for office properties sank by 0.35 percentage points to 4.4%, while the premium return for retail assets fell by 0.5 percentage points to 3.7%.
Slightly more international than national players
In the 1st half of 2015 marginally more international players were active in Berlin’s market for commercial properties than national investors. Although international investors were the purchasers of some 55% of the volume traded, they sold slightly more, namely around 58% of the total. The biggest international investors were REITs and asset managers. When it comes to international vendors, the project developers and specialist or open-end funds figured more prominently than others.
Wide range of groups on both sides of trades
Accounting for a share of a good 24% of the volume of transactions (€689m), REITs dominated the buying side of the equation, primarily as a result of the huge transaction involving the Odin portfolio. Open-end funds took a similar share of the market at 20% (€579m), followed by asset managers with a share of 17% (€485m). Developers comprised the single biggest group of vendors, with a 20% share of the volume of transactions (€578m), closely followed by open-end funds with a share of 18% (€519m) and REITs with 18% (€513m). So far this year, private investors have played only a minor role on the market for commercial properties in Berlin. As buyers, they accounted for 15% (€436m) of the volume of transactions, and as vendors for 10% (€286m).
Outlook 2015
“The current conditions for investments in the Berlin market are unlikely to change during the rest of the year due to the ongoing euro crisis and the low interest rates,” says Holger Michaelis, managing director at Grossmann & Berger Berlin, summarizing the situation. 
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