Investment market top-7 4Q2015

Sound record results

Press release | Hamburg

Figures from German Property Partners (GPP) show that, in terms of investment transactions, 2015 was the best year since 2007 for Germany’s top 7 property locations. At the end of 2015 the volume of investment transactions in commercial real estate (not including buy to rent residential) totalled €28.03bn. “Turnover shot up again, this time the increase was about 30 per cent and thus even stronger than the 25 per cent we recorded at the turn of the year 2013/2014,” remarks GPP spokesman Björn Holzwarth.

Investment market top-7 4Q2015Investment market top-7 4Q2015
Transaction volume: Seven records
Each of the seven locations saw the volume of investment transactions in commercial properties rise; not only that, the figures reached record levels not seen since the financial crisis began in 2007.

“In 2015 Berlin was the undisputed capital of investment in Germany. Commercial real estate valued at €7.48 billion – more than a quarter of the overall volume – was traded in the city,” says Holzwarth. The enormous volume is largely due to the 3rd-quarter sale of the “Potsdamer Platz Portfolio”, which alone accounted for €1.4bn. The transaction is the largest known sale of a portfolio of commercial real estate in the year 2015.

10 biggest known commercial transactions top 7 locations 2015
City Project/Property Investor Vendor Pur. Price (€m)
BER Potsdamer Platz Portfolio Brookfield Property Partners Savills Fund Management < 1,400
FAM Trianon NorthStar Realty Finance Madison International Realty 540
FAM Eurotower (95% share) IVG RFR Holding 455
CGN LANXESS arena, Stadthaus, ancillary buildings Mirae Asset Global Investments, Junson Capital Esch-Oppenheim-Fonds 440
BER Boulevard Berlin Klépierre Corio 370
BER The Q Tishman Speyer Pontegadea/Banco Santander 335
MUN Siemens Campus Pramerica RE Investors HIH/RFR Holding > 300
HAM Berliner Tor Center Zurich Versicherung Morgan Stanley 269
FAM MainZero NPS Tishman Speyer 250
MUN Elisenhof AXA S.A. Tishman Speyer 227

Munich proved to be the second most favoured city for commercial property investments, registering transactions totalling €5.45bn. With fifteen agreements involving sums of over €100m and accounting for more than 40% of the total volume, the result was some 10% higher than the figure for 2014.

Frankfurt’s result of €5.17bn was only slightly higher than the total returned the year before. “In 2015 the limited supply caused investors to resort to development, value-add and opportunistic real estate purchases; short-term contracts or the need for asset management services were more readily accepted,” says Holzwarth.

With three agreements for sums in the hundreds of millions, Hamburg closed with a transaction volume of €3.9bn. This translates into year on year growth of about 7%. Sales of commercial properties in Düsseldorf added up to some €2.43bn, a disproportionately high increase of more than a quarter.

With a €440m price tag, the sale of the LANXESS arena in Cologne, including the Stadthaus (used by Cologne city administration) and ancillary buildings (car park and ice rink used by the Cologne Sharks/Kölner Haie ice-hockey team) at the end of December was the fourth largest commercial real estate transaction reported in Germany during 2015. “Here, following in the footsteps of the South Korean pension funds NPS’ purchase of “MainZero”, we are again seeing Asian investors figure directly in a major transaction,” adds Holzwarth. The total transaction volume in Cologne was €1.9bn; here too, this represented an above-average increase of 46%.

In Stuttgart, four sales for amounts in the hundreds of millions pushed total transactions to €1.71bn, which translated into growth of 70.5%, the second-biggest percentage increase seen in the top 7.

“Compared with 2014 there was an appreciable rise in the volume of transactions in 2015, and portfolio deals played a much greater role too. The proportion of portfolio trades was especially high in Berlin, Hamburg and Düsseldorf. Portfolios made up between a quarter and a third of the volume of transactions,” says Holzwarth. “However, the properties in a portfolio are usually situated in B locations and need asset management services, as is the case with the Bridge and Stella portfolios.”

Returns: Ongoing yield compression
Compared with 2014 the premium return on office properties had declined further in each of the top 7 locations by the end of 2015. Yields varied from a mere 3.50% (Munich) to 3.90% (Berlin), 4.0% (Hamburg) and 4.40% (Cologne) up to a maximum of 4.50% (Düsseldorf, Frankfurt and Stuttgart). The largest decline was a drop of 85 basis points in Berlin.

In 2015 office properties remained investors’ preferred asset class. The very high percentage of the transaction volume attributable to office properties in Frankfurt (83%) and in Munich (78%) was due to the fact that the three biggest trades in each of these cities were all office buildings. In Düsseldorf (48%) by contrast, the three biggest transactions concerned retail properties, which explains the relatively low proportion of office trades.

Investors: Safe haven Germany
“The interest of international investors in commercial real estate in Germany’s top 7 locations was appreciably higher in 2015, up by about 50 per cent compared with the prior year. International players invested some €12.79 billion in commercial properties,” says Holzwarth. “To put it another way, they accounted for around 45% of the overall volume of commercial property transactions and for slightly over half of the totals in Hamburg, Cologne and Frankfurt.” As was the case at the end of 2014, open-end and specialist fund managers were the most active buyers and vendors in the top 7 real estate markets during 2015.

Outlook 2016
Holzwarth: “Excess liquidity, more demand than supply, a scarcity of properties and low yields will probably dictate what happens on the investment market for commercial properties in Germany’s top 7 locations over the coming months. The Fed’s decision to raise interest rates could perhaps halt the downward spiral of premium returns on office properties, and uncertainty about how China’s economy will develop might create even more demand from international and institutional investors. These factors lead us to believe that a transaction volume of around €24 billion is a realistic forecast for 2016.”

Germany’s top 7 investment locations, 1st-4th quarters of 2015
Volume of transactions in €bn 3.90 7.48 2.43 1.90 5.17 1.71 5.45
Premium return office in % 4.00 3.90 4.50 4.40 4.50 4.50 3.50
Strongest asset class Office Office Office Office Office Office Office
Strongest asset class in % 67 61 48 38 83 62 78
Sources: GPP-partners, Colliers International Germany (Frankfurt)

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