Investment market top-7 3Q2018

Figures compiled by German Property Partners (GPP) for the first three quarters of 2018 show that the volume of investment transactions in commercial properties (excepting buy-to-let residential) in Germany’s top 7 cities totalled €23.82bn. This represents a year on year increase of 15%. The transaction volume was thus only slightly below the record €23.89bn posted in the same period of 2007. Results for the first two quarters were appreciably above those of the same period in 2017; however, the 3rd quarter, returning €9.61bn, proved even better and is the second-highest on record. Whereas in the prior year international investors were involved in roughly half of the volume traded, their share had fallen to 35% by the end of the 3rd quarter (€8.38bn). Their place was taken by German investors such as professionals’ pension schemes/pension funds, open-end retail funds (real estate) and special funds. As sellers of property, however, international players were far more active, taking advantage of the attractive market environment.
 
Accounting for 63% of the volume traded, office properties were the most sought-after class of assets (2017: 72%). Retail properties accounted for 8% of the market, the same share as in the prior year. Portfolio sales fell to 15% (-8%) of the total. The volume of transactions in the central business districts (CBDs) or inner city locations grew by 34% year on year to €7.13bn. Contrary to expectations, the prime yields on both office properties and on commercial buildings in the top 7 cities slipped yet again, although they had already reached a new low in mid 2018. Office buildings in the top 7 locations now deliver a prime yield of only 3.14%. In Hamburg, prime yields of up to 2.80% are currently obtainable on office properties. The prime yield in Cologne is a relatively reasonable 3.40%.
 
“Business in Germany’s top 7 investment markets progressed very well in the first three quarters of 2018. Despite political turmoil such as the trade war with the USA, government crises in Europe and the danger of Britain crashing out of the EU with no deal, markets have developed smoothly on the strength of demand from German investors,” says Guido Nabben, GPP spokesperson.
 
“We expect the economy to remain in excellent shape in 2019 too, thanks to robust domestic demand, the growth of GDP and increasing numbers of people in employment. The real estate and construction industries will continue to benefit from this,” Nabben predicts.
 
Top 10 known agreements | top 7 locations | Q1-3, 2018

City	Project/property	Buyer/investor	Vendor	Pur. price* (approx. €m)
FFM	“Omniturm”, Grosse Gallusstrasse 16-18	Commerz Real for hausInvest	Tishman Speyer Properties Deutschland GmbH	700
FFM	Local government centre, Gutleutstraße 116-124	Aroundtown	Wealthcap HFS Deutschland	500
HAM	“Springer Quartier”, Sections A+B, Kaiser-Wilhelm-Straße 16	Management company for professionals’ pensions, Hannover	MOMENI / Black Horse Investments	400
FFM	“Junghof Plaza”, Junghofstrasse14-16	Triuva Kapitalverwaltungsgesellschaft mbH for prof. pension scheme	Joint venture formed by a fund managed by PGIM Real Estate and FGI Frankfurter Gewerbeimmobilien.	400
FFM	“Gallileo” Gallusanlage 7/ Kaiserstrasse	Capital and Commercial Trust (CCT)	Fund managed by Triuva for South Korean investor	356
HAM	Care home portfolio: “Pflegen & Wohnen” (13 properties)	Deutsche Wohnen SE	Oaktree Capital Management	> 300
BER	Hilton Berlin, Mohrenstrasse 30	Aroundtown	Listed property investment company - AG/REIT	297
MUC	“Correo-Quartier”, Paul-Heyse-Strasse/Bayerstrasse/Schwantha-lerstrasse	Credit Suisse (insurance)	Postbank	275
DUS	Metro headquarters, Metro-Strasse	Arminius Kapitalgesellschaft mbH for an investment club consisting of German professionals’ pension schemes	Triuva (now Patrizia)	270
FFM	“TSK1”, Theodor-Stern-Kai 1	Credit Suisse	The Blackstone Group	Confidential

*The purchase prices stated are based on publicly available data, where none is available an estimate is made. Source: German Property Partners (GPP)
 
Top 7 locations | Q1-3, 2018

	HAM	BER	DUS	CGN	FFM	STU	MUC	Top 7
Transaction volume in €m	4,000	4,100	2,780	1,500	6,225	1,352	3,862	23,819
Change against prior yr in %	74	-32	60	0	52	46	-7	15
Prime yield*, offices in %	2.80	3.00	3.30	3.40	3.30	3.20	3.00	3.14
against prior yr in percentage points	-0.30	-0.10	-0.40	-0.40	-0.30	-0.30	0.00	-0.26
Prime yield*, commercial buildings in %	2.70	2.90	3.20	2.90	3.00	2.80	2.50	2.86
against prior yr in percentage points	-0.30	-0.10	-0.30	-0.60	-0.60	-0.50	0.00	-0.34
Prime yield*, logistics in %	4.50	4.40	4.50	4.40	4.40	4.50	4.20	4.41
against prior yr in percentage points	-0.10	-0.10	-0.45	-0.50	-0.60	-0.50	-0.55	-0.40
Strongest asset class	Offices	Offices	Offices	Offices	Offices	Offices	Offices	Offices
Strongest asset class in %	54	53	65	51	82	48	60	63

* Net initial yield; source: German Property Partners (GPP)

Top 7 investment markets
Hamburg

• At the close of the 3rd quarter the volume of transactions had grown by 74% in Hamburg, a bigger rise than in any other top 7 city. With trades totalling €4.0bn, the result was even higher than it was at the end of the 3rd quarter of the record year 2007 (€3.7bn).
• Several big-ticket sales (over €100m) added up to €2.0bn, so that during the first nine months of 2018 Hamburg was once more the top 7 cities’ investment hotspot. The biggest single transaction after the sale of the “Spinger Quartier” at the beginning of the year was the 3rd-quarter purchase of the “Hanse Viertel” (Grosse Bleichen 36), which CBRE Global Investors bought for the Europafonds (price confidential) from Allianz insurance company.
• Mixed use properties accounted for €600m of the total trades and were the second most traded assets after office buildings.
• The prime net yield decreased against the 2nd quarter and is 2.80% on office properties and a mere 2.70% on commercial buildings.

Düsseldorf

• The volume traded in Düsseldorf, state capital of North Rhine-Westphalia, totalled €2.78bn (+60%) and is thus already close to the record result posted at the end of 2017.
• Above all, big-ticket trades such as that involving Metro headquarters and the office highrise “Stadttor” (Stadttor 1) which Hannover Leasing sold to Deka for their WestInvest ImmoValue fund at a price of €205m, have boosted the investment market in Düsseldorf.
• Portfolio transactions accounted for 29% of the sales volume, placing Düsseldorf well ahead of the other cities in this respect.
• At 3.20% this city on the Rhine had the highest prime net yield on commercial buildings of any top 7 city.

Frankfurt

• The total volume of transactions grew by 52% to €6.23bn. The market was dominated by 15 big-ticket trades for more than €100m each. 
• The sale of the “Omniturm” highrise which is still under construction in Frankfurt, was the biggest transaction in the 3rd quarter.
• Portfolio trades accounted for a mere 4% of the total. In no other top 7 city was a lower proportion registered.
• Together with Cologne, the metropolis on the Main recorded the highest decrease in prime net yields on commercial buildings, which dropped 0.60 percentage points.

Stuttgart

• The state capital of Baden-Wuerttemberg reported a good 3rd quarter which helped boost the trading volume by 46% to €1.35bn. One reason for this result was the sale of the “Uhland Carré” for which Commerz Real paid Office First / Blackstone fund €230m.
• Mixed use properties accounted for 26% of Stuttgart’s total, a higher proportion than in any other location. In the other top 7 cities this type of investment was low in volume, and only Hamburg and Berlin posted two-figure shares.
• The prime net yield on offices was 3.20%.

Cologne

• At the close of the 3rd quarter this cathedral city reported investment transactions in commercial properties of €1.5bn, thus equalling the figure for the record year of 2017. None of the other 6 cities posted a higher proportion of trades in inner city real estate than Cologne with 63%.
• Accounting for 18% of the total, hotel assets were more popular with investors here than in the other top 7 cities.
• Cologne joined Düsseldorf in posting the biggest percentage point decline in prime net yields on office properties; however, the reduced figure of 3.40% was still higher than elsewhere.

 Munich

• Investments in commercial properties in the Bavarian state capital totalled €3.86bn, a modest drop of 7%.
• This was due to a lack of big-ticket trades in the 3rd quarter. No properties priced at more than €100m were traded in this quarter, unlike the situation seen in the other top 7 cities.
• International buyers accounted for 48% of the trades, putting Munich ahead of Frankfurt and Cologne in this respect.
• Munich was the only top 7 city in which prime net yields on both commercial buildings and offices held steady.

 Berlin

• Without the non-recurring boost from the “Sony Centre” sale and in view of a number of transactions still awaiting closure, the volume of trades dropped to €4.1bn, a significant contraction of 32%.
• Two large trades stood out in the 3rd quarter: the sale of the Zalando Campus (Valeska-Gert-Strasse) for €235m and of “Das Schloss” (Schloss Strasse 34) for €225m.
• Retail properties accounted for a relatively high 16% proportion of total trades; only in Cologne did this asset class reach a higher share.
• The prime net yield on office properties shed 0.10 percentage points, slipping to 3.00%. In the CBD and adjoining locations yields moved sideways.