Investment market top-7 4Q2016

Rally at year's end and run on towers

Press release | Hamburg

Figures from German Property Partners (GPP) for the investment year 2016 reveal that the final total of transactions in Germany’s top 7 locations - Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich - was €28.75bn (excluding buy-to-let investments). “That is the third-best result after the years 2007 and 2015, and well above the ten-year average of 18.4 billion euros,” says GPP spokesman Björn Holzwarth. “In view of the remarkable final-quarter run on commercial tower blocks in Frankfurt and Munich, the drop of two per cent is hardly significant.”
Transaction volume: Tower block sales put Frankfurt and Munich on top
Despite three rather quiet quarters, the volume of transactions for the whole of 2016 grew most strongly in Munich, with an increase of 19%. “About half of the sales volume totalling 6.48 billion euros took place in the fourth quarter. We’ve never seen that happen before,” remarks Holzwarth. Essentially, this may be traced to the part of the Officefirst portfolio located in Munich, where eleven properties were sold for €700m, and to the biggest sale of a single Munich property, the 4th-quarter purchase of Highlight Towers, for which Commerz Real paid a KanAm fund subsidiary over €500m.
In absolute figures Frankfurt returned the highest transaction volume of all top 7 locations at €6.51bn, and the second-highest growth of 14%. Here too, more than half of the total volume of transactions in 2016 took place in the 4th quarter. This was attributable not only to the proportion of portfolio transactions, which grew from one fifth to one quarter, but also to three sales priced at between €650m and €680m each. These big-ticket properties were The Squaire, sold from the Officefirst portfolio to Blackstone, the Commerzbank Tower and the Taunusturm. As Holzwarth says, “Everyone tracking the Frankfurt market was surprised by how many expensive properties changed hands at the end of the year.”
The third-biggest growth rate among the top 7 locations was posted by Hamburg, up by +13% to a total of €4.50bn. The volume of transactions in the city was the best seen since 2007, when a total of €4.50bn was likewise recorded. A large part of this result stems from two portfolio sales - 23 properties for €509m from the Officefirst portfolio, and four from the WealthCap portfolio for €160m - plus the 2nd-quarter share deal for Alter Wall 2-32 involving a sum in the mid-range of the hundreds of millions.
In Stuttgart, where the fourth-highest increase was posted, growth of 7% resulted in the best-ever volume of transactions and a total of €1.83bn. Major factors here were the sale of CityGate (Kriegsbergstrasse, Friedrichstrasse) for some €110m to Eastern Property Holding, of the Telekom site (corner of Nauheimer Strasse and Deckerstrasse) acquired by JP Morgan Asset Management, of the Europe Plaza (Stockholmer Platz 1) for which Real IS paid a price at the high end of double-digit millions and other transactions for tens of millions each.
Top 10 known agreements | top 7 locations | Q1-4, 2016
City Project/property Buyer/investor Vendor Pur. price
FFM The Squaire Blackstone Officefirst 680
FFM Commerzbank Tower Samsung SRA Asset Management Commerz Real 675
FFM Taunusturm Tishman Speyer, Qatar Investment Authority, Varma Mutual Pension Insurance Company, Elo Mutual Pension Insurance Company Tishman Speyer, Commerz Real 650
MUC Highlight Towers Commerz Real Fund subsidiary of KanAm > 500
FFM ibc, Theodor-Heuss-Allee 70-74 GEG German Estate Group RFR Gruppe 400
CGN MesseCity, 3 building lots Warburg HIH RE for several pension funds Strabag Real Estate, ECE Projektmanagement 350
MUC Campeon Infineon Ganeba > 300
MUC Baywa Tower WealthCap Baywa/Competo 280
BER Park Inn by Radisson Berlin Alexanderplatz FDM Management Brookfield Properties/Starwood Capital confidential
HAM Alter Wall 2-32 (share deal) Versorgungswerk Ärztekammer Hamburg (doctors’ pensions) Art-Invest confidential
In absolute terms and with regard to the percentage change in the volume of transactions, Düsseldorf occupied fifth place among the top 7 locations. The capital of North Rhine-Westphalia returned a total of €2.62bn despite a slight fall of 4%; it thus more than compensated for a below average result in the 1st half-year and came close the the record €2.73bn set in the prior year. By the end of the year, no transaction had topped the €153m that BNP REIM paid for the L’Oréal headquarters Horizon (Rossstrasse, Johannstrasse).
In absolute figures the smallest volume of investment was the €1.80bn recorded in Cologne, which was nevertheless close to the record result seen in the prior year. Sales of commercial properties dropped by a mere 5% compared with 2015. Three building lots in MesseCity (Deutz-Mühlheimer-Strasse, Barmer Strasse) accounted for around one fifth of the total transactions; they were acquired for €350m in the 3rd quarter by Warburg HIH Invest Real Estate on behalf of several pension providers.
Returning -36%, Berlin closed the 4th quarter in last place on the basis of growth or contraction of the transaction volume. This was partly because no transactions for over €1.0bn were concluded, unlike 2015 when the portfolio trade Potsdamer Platz accounted for €1.3bn, and partly because many big-ticket trades which were initiated in connection with the ExpoReal had not yet been signed in the 4th quarter. “For this reason we expect to see an unusually strong first quarter for Berlin in 2017,” explains Holzwarth. Berlin nevertheless posted the third-highest volume of sales in the top 7 locations, with transactions totalling €5.02bn.
Yields: Small cities see biggest contraction
“In order to offer figures that investors can more readily compare with other asset classes, we have changed our reporting method from gross to net prime yields,” explains Holzwarth. By net yield German Property Partners means the ratio between the annual rental income less non-apportionable ancillary costs and the gross purchase price, i.e. net purchase price plus the costs of acquisition (land acquisition tax, entry in the land register, notary and appraisal fees, agency commission). “This change results in lower prime yields than previously stated,” says Holzwarth.
Yields on office properties at the end of the 4th quarter of 2016 ranged from 3.10% in Munich to 3.30% in Hamburg and Berlin, 3.50% in Stuttgart, 3.80% in Düsseldorf and Cologne, and up to 3.90% in Frankfurt. “Slipping back 60 basis points, the small investment locations Stuttgart and Cologne posted the biggest declines and thus seem to be now responding to high demand with a development that has already taken place in the larger cities,” says Holzwarth.
Prime yields on retail properties have fallen to 2.60% in Munich, followed by 3.10% in Berlin and Stuttgart, 3.30% in Hamburg and 3.60% in Düsseldorf, Cologne and Frankfurt. Here too, Stuttgart posted the biggest decline, contracting by 70 basis points.
The prime yields on logistics and industrial properties varied between 4.90% in Hamburg and 5.10% in Berlin, Frankfurt and Stuttgart. Düsseldorf and Cologne were in between at 5.00%. Yields slipped furthest in Cologne, where German Property Partners noted a decline of 60 basis points.
Investors: Berlin remains a hot spot for international players
In 2016 international players invested €12.59bn in commercial properties located in Germany’s top 7 cities. However, international players were involved in 44% of the total, slightly less than the 51% seen in 2015. Berlin remained the hot spot for international activity, where foreign investors accounted for 64% of the volume of transactions. The lowest level of foreign investment - 29% - was in Munich.
“Contrary to predictions, almost as much capital was invested in commercial property in Germany as in the prior year and the business proved to be considerably more resilient than feared. Even experts like us were surprised by the large volume of transactions in view of the scarcity of properties that everyone talks about,” says Holzwarth in his summary of what happened in 2016. “In 2017 the big political issues will be fear of terrorism, Trump’s inauguration, Brexit, and parliamentary elections in France and Germany. It remains to be seen to what extent these issues will affect the market for investment in commercial properties in the top 7 cities. All we can be sure of is that there is an enormous pool of capital for investment and hardly any alternatives to real estate.”
Top 7 locations | Q1-4, 2016
Transaction volume in €m 4,500 5,020 2,620 1,800 6,510 1,825 6,475 28,750
against prior yr in %
+13 -36 -4 -5 +14 +7 +19 -2
Prime yield*, offices in % 3.30 3.30 3.80 3.80 3.90 3.50 3.10 -
Prime yield*,
retail in %
3.30 3.10 3.60 3.60 3.60 3.10 2.60 -
Prime yield*, logistics in % 4.90 5.10 5.00 5.00 5.10 5.10 5.00 -
asset class
Offices Offices Offices Offices Offices Offices Offices -
asset class in %
73 61 65 75 82 72 74 -

* Prime yield now shown as net initial yield instead of gross

Source: German Property Partners

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