Investment market top-7 2Q2016

Commercial transactions a quarter down due to shortage of properties

Press release | Hamburg

Figures from German Property Partners (GPP) show that the volume of commercial transactions in Germany’s top 7 cities (excluding buy to let investments) totalled some €9.20 bn by the end of the 2nd quarter. Year on year, the total was lower by 25.2%. “This result is not very surprising. The capital for investment is out there, but there are too few properties. Therefore prices have reached levels never seen before. Not even pre-financial crisis. For most investors, the lack of alternatives means that it is more important to preserve existing wealth than to generate income,” says GPP spokesman Björn Holzwarth, summarizing the situation. “Obviously Brexit is a topic that concerns everyone. In the short term it means that the German and French markets have become more important. Returns have been further squeezed in the last few days, not only in Frankfurt and Berlin, but in all the top 7 locations. It remains to be seen what the downside is. Negative effects can only be triggered by a downturn in the domestic economy. This is the only case that might provoke a short-term overreaction on the investment market.”

Investment market top-7 2Q2016Investment market top-7 2Q2016
Transaction volume: Hamburg and Munich front runners
Reporting total transactions of some €2 bn, Hamburg and Munich were the investment hot-spots as the 2nd quarter came to an end. Three sales in excess of €100m each pushed up the investment total in Hamburg, where an increase of about 3% was registered.

In Munich the number of transactions worth over €100m fell from five to one, for a 31% decline in the result. The one big-ticket transaction was the sale of Richard-Strauss-Strasse 76 to the Bayerische Versorgungskammer (a pensions provider) for some €120m.

Biggest commercial property transactions announced, top 7 locations, Q1-2 2016
City Project/property Buyer/investor Vendor Pur. price (€m)
FFM ibc, Theodor-Heuss-Allee 70-74 GEG German Estate Group RFR Gruppe 400
MUN Baywa-Tower, Arabellastrasse WealthCap Baywa/Competo 280
FFM Aculeum, Hahnstrasse 43e AGC Equity Partner Tishman Speyer 144
HAM Telekom Campus Amundi TAS KG 120
MUN Richard-Strauss-Strasse 76 Bayerische Versorgungskammer Siemens AG 120
FFM Meandris, Europaallee 48-50 Triuva Kapitalvewaltungsgesellschaft Strabag Real Estate 105
MUN Kistlerhofstrasse 75 WealthCap JP Morgan 100
DUS La Tête Insurance co. aurelis 100
BER Park Inn by Radisson Berlin Alexanderplatz FDM Management Brookfield Properties/ Starwood Capital n/a
BER The Westin Grand Berlin FDM Management Brookfield Properties/ Starwood Capital n/a
HAM Alter Wall 2-32 (share deal) Versorgungswerk Ärztekammer Hamburg (pensions) Art-Invest n/a

In the 2nd quarter the big-ticket sales of two hotels from the Brookfield/Starwood portfolio - the Park Inn and the Westin Grand - made a major contribution to Berlin’s transaction volume of about €1.9 bn. Even though the market was considerably more dynamic than in the 1st quarter, the national capital returned a total that had fallen by some 35%, the second-biggest drop recorded.

Despite posting the biggest transaction - the 2nd-quarter sale of the ibc for some €400m - Frankfurt reported the greatest decline in transaction volume. Notwithstanding a fall of some 42%, the total reached around €1.61 bn.

To date no commercial properties bought and sold in Düsseldorf have cost significantly more than €100m. The volume of sales sank by about 6% to €671m.

In Stuttgart, where no sales topped €90m, the volume of transactions totalled €602m, 2% higher than the prior year’s figure.

With a transaction volume of €425m, the Cologne market was more sluggish than in the same quarter a year ago, dropping by 15%.

Year on year it was clear that office buildings remain the most popular class of assets, posting a nearly identical market share of 65% (€5.97 bn) at the close of the 2nd quarter. Hotels edged retail properties out of second place with a share of 13% (€1.23 bn). The greatest change was noted for building land transactions, which shot up by 90% to reach a share of 10% (€948m). Portfolio sales accounted for some 13% of the market (€1.19 bn).

Returns: Downward trend in all cities
By the end of the half year premium yields on office properties had fallen further in all top 7 cities, settling at between 3.50% (Munich) and 4.40% (Düsseldorf). The largest decline was a drop of 80 basis points in Berlin. “Until there is a change in the market parameters, there is no sign of any rise in premium returns on office properties,” predicts Holzwarth.

Investors: International investors favour Berlin
International investors accounted for some 33% of the total volume of commercial property investment transactions in the top 7 cities (€3.05 bn). In the same quarter a year ago, their share was 49%. Berlin was by far the most popular city with foreign investors, who accounted for 76% of the volume.

“It could be that Brexit means that international investors turn their backs on Europe or invest less. And if they do invest, then in France and Germany. With big-ticket properties, Frankfurt as a banking centre and Berlin as the capital city could both benefit from the situation,” thinks Holzwarth.

Outlook: 2016
“A large number of big properties are in the process of being sold. The total volume of transactions in the top 7 cities could thus approach €28 bn by the end of the year. However, that crucially depends on market parameters staying as they are,” says Holzwarth venturing a forecast. “Brexit could further reduce the number of properties on the market and thus further increase the price to rent ratios. Competition for core products is likely to intensify and we will see more investors moving into other risk classes and locations.”

Germany’s top 7 investment locations, Q1-2 2016
Transaction volume in € millions 2,000 1,900 671 425 1,605 602 2,000
Premium return, office in % 4.00 3.80 4.40 4.20 4.15 4.25 3.50
Strongest asset class Offices Offices Offices Offices Offices Offices Offices
Strongest asset class in % 66 48 81 73 80 57 59

Source: German Property Partners

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