Skip Ribbon Commands
Skip to main content

News Release


German commercial property investment market makes a strong start to 2015

Press release including overview table [PDF]

Charts [PDF]

FRANKFURT, 2nd April 2015
– “It’s so good, it’s bad” is how the English-speaking world describes the current situation on the property markets. It’s a fitting description that accurately reflects the sentiment of numerous investors. The underlying fear that we are now treading on very thin ice is also linked to the question: how long can this last?
The positive economic conditions are supporting what is an almost incredibly good market situation. The eurozone is also slowly getting back on its feet. The weaker euro compared to the US dollar, low interest rates and low energy prices provide an additional tailwind. For some time now the European Central Bank has been pushing the general interest rate level down to almost zero through a massively expanded securities purchase programme and is thereby helping to maintain an attractive investment climate on the property markets. Alternative forms of investments with fixed interest rates are therefore still unattractive in relation to real estate because of real interest rates that at times are negative. “As a consequence we therefore still expect considerable capital to be invested in the German property markets,” said Dr. Frank Pörschke, CEO Germany at JLL.
Pörschke added: “The longer the interest rate is close to zero and the more capital is allocated to the property asset class, the higher the risk of overstatements or misallocations. In addition, the vulnerability of investments to real economic and financial shocks increases. As things stand, we still see no sign of overstatements across the board or excessive financing constellations. Despite the growing pressure on investors to invest, buyers are scrutinising their targeted properties very closely and back out of sales when discrepancies emerge. In this respect, not every purchase process that is initiated delivers the desired outcome. And it is precisely this deceleration of the sales process that reflects the high level of professionalism of investors involved in these deals.”
Timo Tschammler, Member of the Management Board Germany at JLL, added: “In our view, this heightened perception of risk among investment market players is attached to a significant change in perception about what yields can be realistically achieved. This is also a major difference from the last boom phase of 2006/2007.”

High awareness of quality among investors – focus on office properties

In a historical overview of first quarters since 2006, the transaction volume of around €9.5 billion in the recent quarter does not represent a record volume on the German commercial investment market but is in fourth place. A peak volume of €10.9 billion was recorded in 2006. This may be surprising in view of the very good market situation, and some might even describe the volume as being “only” €9.5 billion. “In our view, it would have been more alarming if the volume had risen significantly. The current volume reflects the high awareness of quality among investors and market participants. And that adds far more weight than an extra €1 billion or €2 billion on the account,” said Tschammler.
By far the largest transaction in the quarter involved the sale of four shopping centres as part of the company sale of Corio to French shopping centre operator Klepierre for almost €1 billion. A total of 15 transactions above €100 million were registered in the first three months. These amounted to a transaction volume of more than €3.3 billion or more than a third of the total transaction volume, and included seven individual transactions.
In an overview of all transactions in Germany irrespective of size, individual transactions accounted for around 70% of the transaction volume (almost €6.7 billion). This represented a 22% increase compared to the previous year. In contrast - and somewhat surprisingly - the portfolio transaction volume fell by 38% to €2.8 billion. “In view of the portfolios that were still placed on the market and the continuing corresponding demand, we see this more as a given moment in time and not as a trend for the rest of the year,” said Tschammler.
As was also the case last year, office property accounted for the highest proportion of the overall German transaction volume with a share of around 44%. Thanks to the billion-euro-deal with four shopping centres, the percentage share of retail property grew significantly to 31%. Warehouses/logistics properties generated a transaction volume of almost €700 million, corresponding to a share of 7%.
Berlin ousts Frankfurt from top spot among the property strongholds
Even though there was evidence of heightened demand for investment opportunities outside the established markets, this was not (yet) reflected in the transaction figures. Only six individual transactions above €50 million with a total volume of €500 million were registered in second-tier towns. This represents a share of just 18% of the transaction volume for this category and again reflects the continuing focus on the Big 7. “Many investors are currently able to shoulder higher investment volumes because of their comfortable level of equity resources and the favourable financing conditions. However, properties outside the Big 7 that meet these criteria are of course extremely rare,” said Tschammler.
Against this background it is also not surprising that the transaction volume in the Big 7 increased by 28% year-on-year to almost €5.2 billion. Or to put it another way: more than 54% of the transaction volume throughout Germany took place in the seven established markets. A year ago, the share was “only” 41%.
Berlin again snatched the top spot from Frankfurt in the first quarter of the year, with a volume of €1.3 billion. Munich also moved slightly ahead of Frankfurt with a registered volume of €1.2 billion. Berlin was also in the lead in terms of the relative growth rates (+113%). In Düsseldorf, the transaction volume reached just €180 million; the capital of North Rhine Westphalia was therefore the only city to register a decline (-74%).

The market maintains its international character
Foreign buyers are continuing to show interest in 2015. In the first quarter of 2015, their share even increased to more than 50%. “Of the 10 largest transactions in the quarter, seven were carried out by foreign investors. Thus the long-awaited activity of foreign investors is now reflected in the statistics. We predict that a rising number of active investors from overseas will flock to the market this year. In particular, we mostly expect to see institutional investors from Asia and the Middle East that are seeking alternative investments because of the low yields in their domestic market, and for whom investment products with a “4” in front of the decimal point still seem attractive,” commented Helge Scheunemann, Head of Research Germany at JLL.

Prime yields remain under pressure
Core properties prices continue to rise, and this ultimately applies across all commercial asset categories. In the office segment, the prime yields dipped again in view of the continuing high demand. The aggregate value for the Big 7 fell by a further 8 basis points to 4.37%. At the same time, this decline did not affect all markets equally. Frankfurt and Munich registered significant declines of 25 and 20 basis points respectively, while in Düsseldorf and Cologne the yields fell only because of the increase in the property transfer tax in North Rhine Westphalia. In Berlin, Hamburg and Stuttgart the yields were unchanged from the previous quarter. In a one-year comparison, the office yields therefore fell by 24 basis points on average.
The other asset classes also registered a decline in yields because of the strong demand. In the logistics property segment, the average prime yield for the logistics regions of the seven strongholds fell sequentially by a further 12 basis points to 6.06%. For specialist shopping centres and specialist stores, yields fell by 10 basis points to 5.50 % and 5.90% respectively. Prices of commercial buildings in city centres also increased again, and again pushed the already low yield down slightly to 3.97%. Only yields for shopping centres remained unchanged at their previous level of 4.50%.
“The attractiveness of higher risk Core+ and value add products is currently growing not only on the supply side but also on the demand side. Above all, the insufficient yields in the bond segment mean that large pension funds/state funds require higher yields in the alternative investment segment, and to this end provide larger capital amounts for purchases. For this reason, yields are also now starting to show movement in this segment,” stressed Scheunemann.
It is hard to predict when prices will stop rising. However, as long as the interest situation stays as it is and we do not experience any exogenous shocks, investors will also accept higher prices. It remains to be seen how a rise in U.S. interest rates would impact the market here; capital flows could be diverted to the United States, in the process reducing some of the pressure on yields. By the end of 2015, we expect yields to fall by a further 10 basis points for office property and shopping centres and by around 20 basis points for logistics properties, which would then fall below 6%.
Even then, property investment yields will still be higher compared to other financial investments. This will continue to fuel the investment markets in Germany. “In 2015 as a whole, we expect a transaction volume of well above €40 billion,” said Pörschke.