Investment market top-7 2Q2017

Figures for the 1st half of 2017 from German Property Partners (GPP) show that the volume of commercial transactions in Germany’s top 7 cities (excluding buy to let residential) totalled some €11bn. Year on year, the result grew by 20%. “The volume of transactions has stabilized at a high level. In view of unabated demand it is difficult to find suitable investment properties, particularly in the core segment. We are noticing, however, an emerging tendency on the part of owners to sell their properties sooner and not to hold them for as long as before,” comments Björn Holzwarth, spokesman for German Property Partners.
 
Transaction volume: Cologne moves up into the BIG 5, Berlin overtakes Munich 
At the end of the 2nd quarter Berlin and Munich reported the biggest transaction totals at €2.55bn and €2.42bn respectively. Due to three transactions in the hundreds of millions, two in the 1st and one in the 2nd quarter, Berlin pulled ahead of Munich. The most spectacular improvement in the 1st half of 2017 was Cologne’s year on year growth of 135%. Düsseldorf posted a 39% rise and, together with Frankfurt and Berlin, which saw increases of +35% and +34% respectively, these three finished in front of Munich with 21% growth. Year on year Stuttgart registered a decline of 2% in the volume of transactions and Hamburg’s result fell by 33%.
 
Some big-ticket transactions in the 1st and 2nd quarters helped Cologne to pass the one-billion-euro mark and post a new record result. In addition to the sale of the Gerling development in the 1st half of 2017 one of the biggest transactions was the sale by project developer Gerchgroup of Deutz AG’s production site on Deutz-Mühlheimer Strasse.
 
Major known agreements for €100m or more | Top 7 locations | 1st-2nd quarters of 2017

 
Once again, no commercial real estate changed hands for more than €100m in Düsseldorf. But, thanks to numerous transactions at prices between €20m and €60m, the total volume traded in the city, capital of the state of North Rhine-Westphalia, rose appreciably to reach €930m at the end of the 2nd quarter.
 
Year on year the transaction volume rose in Frankfurt to €2.17bn. Whereas there had been no sales accounting for more than €100m in the 1st quarter, Frankfurt had caught up by the end of the 1st six months: a big contribution to the large volume of trades in the 2nd quarter was made by the sale of the “T8” highrise (Taunusanlage 8) which Mirae Asset Global Investments Co., based in South Korea, bought from Credit Suisse.
 
At the end of the 1st half year Berlin reported the biggest volume of transactions involving investments in commercial real estate of any top 7 city (€2.55bn). Due to numerous big-ticket trades the national capital posted its second-highest investment total in ten years, topped only in 2015. The good start to the year 2017 thus carried forward into the 2nd quarter.
 
Following the best start to a year seen in recent times, Munich faltered slightly in the 2nd quarter, but its result was still an excellent €2.42bn.
 
The Stuttgart investment market recorded a weak start to the year but in the 2nd quarter business picked up and the 1st half year closed with a total transaction volume of €589m.
 
With a transaction volume of €1.35bn at the close of the 2nd quarter, Hamburg was unable to maintain the same high level as the year before. However, the volume of transactions in the 2nd quarter was €880m, almost double the €470m posted in the 1st quarter. The biggest trade in the 1st half year was the sale of the “Radisson Blu Dammtor” hotel (Marseiller Strasse 2) for which Wenaasgruppen paid Azure Property some €200m.
 
“Four of the top cities returned percentage increases that were well in the double-digit range, and Cologne posted a treble-figure rise. In Stuttgart we also expect the year to close with a sturdy volume of transactions. The low level in Hamburg remains attributable to a lack of properties,” says Holzwarth.
 
Demand for office properties has grown further. Accounting for €7.76bn or 71% of total transaction value at the end of the 2nd quarter, offices were once again the most popular class of assets. With a share of 8% each, retail properties (€912m) and hotels (€846m) placed second. Portfolio sales accounted for some 15 % of the market (€1.67bn).
 
Yields: Continuing low in all cities
In each of the top 7 cities prime yields were being squeezed a little. Prime yields on office properties settled at levels ranging between 3.20% in Munich and Berlin and 3.80% in Cologne.
 
Prime yields on commercial buildings were lowest in Munich, at 2.70%. Düsseldorf and Cologne marked the top end of the scale - 3.50% in both cases.
 
The picture regarding prime yields on logistics and industrial properties was similar to that of the 1st quarter: here the range of yields is narrow, from 4.90% in Cologne, Düsseldorf and Hamburg to 5.20% in Frankfurt, the latter figure being unchanged. “Yields have fallen again. There is not much leeway for further declines,” says Holzwarth in summary.

Investors: More attractive to international players
In the 1st half of 2017 investors from abroad looking to acquire properties in the top 7 cities spent a total of €4.46bn. Compared with the same period a year ago (€3.05bn.), that represents an increase of 8%. After a hesitant start to the year 2017, the majority of foreign investment transactions took place in the 2nd quarter. Foreign investors were most prominent in Frankfurt, accounting for 55% of the volume, largely due to the T8 transaction; the smallest shares of non-domestic investment trade were posted in Cologne (21%) and Munich (22%). In Berlin the proportion of foreign investors fell from 76% in the same period of 2016 to 50% in the 1st half of 2017.
 
Outlook
“Despite the large volume of transactions in the first half year, 2017 is not expected to close with a total equal to the €29bn reached in the record years 2015 and 2016. However, some extremely large trades could possibly be concluded before the year has ended. Some big-ticket transactions are in the pipeline, and these could have a positive impact on the market. These potential trades include the sale of the Sony Center, the Axel Springer new build and the Axel Springer mall in Berlin or the “Tower 185” in Frankfurt,” remarks Holzwarth. The need for investment opportunities on the capital markets remains high and considerable demand will continue to result in yields that stay low.”
 
Top 7 cities | 1st-2nd quarters of 2017

* Net initial yield

Source: German Property Partners