Savills
Marcus Lemli - Savills
Marcus Lemli, CEO Germany and Head of Investment Europe at Savills
Research in from property advisory group Savills show that transaction volume in the German commercial property market was about €24.2bn, and is likely to exceed €50bn for the full year, with not significant downturn in the commercial investment market in what will be the eleventh year of a ‘supercycle’.
According to Marcus Lemli, CEO Germany and Head of Investment Europe at Savills, “Prime yields on office property are currently around 340 basis points higher than those on tenyear German government bonds. This is the third highest differential in the last 30 years. Furthermore, not only have interest rate hikes been deferred, a rate cut is currently being discussed in the USA. This will entail penalty interest on large short-term bank deposits and, consequently, investors will remain under high pressure to invest. Global capital flows into real estate are likely to continue and Germany will benefit as one of the most liquid markets.”
Prime yields remained pretty much unchanged at the end of the second quarter for offices and high street retail in the biggest cities, averaging 3.1%. Other prime yields also tread water in the period, with shopping centres yielding 4.2%, retail parks 3.9% and logistics properties 4.2%.
Of the overall transaction volume, office properties made up 45% or nearly €10.9bn. These were followed by retail at 24% or €5.9bn, followed by logistics/ industrial at 10% or €2.5bn. This is a sharp decline of 32% year-on-year for logistics/industrial, while offices and retail property registered modest increases of 5% and 2% respectively.
The top seven cities (excluding the surrounding regions) accounted for around 52% of investment volumes with approximately €12.3bn. Berlin was responsible for by far the highest transaction volume with €4.9bn, accounting for roughly the same level of investment as Frankfurt (€2bn), Munich (€1.7bn) and Hamburg (€1.2bn) combined. Properties changed hands for less than a billion euros in Düsseldorf (€982m), Cologne (€979m) and Stuttgart (€635m).
Notable among the destinations of capital flows was the popularity of the socalled secondary cities, which benefited at the expense of the Big 7 cities. With the exception of Berlin (+94% compared with H1 2018) and Cologne (+32%), all top seven cities witnessed significant double-digit declines in investment volume averaging 30%. “While volumes declined in most of the top seven cities, significantly more capital flowed into the B-cities and C-cities,” says Matti Schenk, Senior Consultant Research for Savills Germany, adding: “Population growth is also projected for the B-cities and C-cities over the next ten years, which is expected to create higher demand for property. At the same time, competition among bidders in the investment market is sometimes less intensive in those markets than in the top seven cities since high-value properties are significantly scarcer and the markets are generally less liquid. The five strongest second-tier investment markets were Leipzig, Nuremberg, Hanover, Bonn and Mainz, which accounted for total investment of more than €1.7bn.
“Risk-averse capital continues to dominate market activity, which is why investors are only prepared to make relatively small compromises in terms of the quality of properties and locations, even in the eleventh year of the supercycle,” said Lemli, adding: “This does not mean that investors are only looking in the CBDs. All locations with good long-term letting prospects are in their sights.”
Despite heightened economic risks, demand from investors is expected to remain high in the second half of the year. Savills expects the transaction volume to exceed €50bn once again by the end of the year, making it the fifth year in a row that this level has been surpassed.
