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News Release


Transaction volume picks up again – the German investment market is in full swing at the close of summer

​Press release including overview table [PDF]

Charts [PDF]


FRANKFURT, 30th September 2016 – Now that more than three months have passed since the shock of the Brexit vote, the financial markets appear to have come back down to earth. The braking effects on the economy have not been as severe as had been feared, while it seems to be business as usual on the real estate markets. Dr. Frank Pörschke, member of the EMEA management board and CEO JLL Germany, commented: “It is too early to make a final assessment. There is still too little information about the progress of negotiations between the EU and the UK. As a result, uncertainty and nervousness continue to exist. As well as Brexit, this is also primarily due to the upcoming election in the United States, the constitutional referendum in Italy and the presidential election in Austria. Next year, voters are also going to the polls in France and Germany. The population’s growing disenchantment with politics throughout the EU, combined with the rise of right-wing parties, hangs like the sword of Damocles over the economy and the financial markets.” Pörschke added: “Those controlling the financial economy at the European Central Bank have almost no other choice than to continue the policy of zero interest rates in order to ensure a certain level of stability and certainty, at least on this front, over the next one or two years. However, the banks are also increasingly voicing their concerns over the massive impact that the ECB’s “interest-free era” is having on their business model. Banks are not earning much from loans, while at the same time they incur penalty interest on their own fund deposits at the ECB.” Brexit, elections, banking crisis - aside from these potential flashpoints it is all too frequently forgotten that the fundamental economic data demonstrates a significantly better and more positive situation, in turn reflected by well-performing rental property markets. This, combined with low interest rates and relatively unattractive alternative investment options, particularly applies to Germany and is a motivating force in the commercial property investment considerations of domestic and foreign players.

Transaction volume in Germany regains momentum in the first nine months of the year
“The investment market picked up again in the months from July to September, when investors showed a significantly higher propensity to close deals (Q3: to a value of €14.7 billion). Whether this recovery in the transaction volume is a result of Brexit causing investors to divert capital flows and invest more on the European continent remains pure speculation, and also cannot be explained in such a conclusive manner. However, it is a fact that Germany remains a top investment destination for market players and continues to offer attractive investment opportunities for all investor types and all risk profiles,” stressed Timo Tschammler, member of the management board at JLL Germany.
In the first nine months of 2016, the total transaction volume for commercially used property in Germany reached €32.7 billion. Although this represents a decline of 14% compared to the previous year, the strong third quarter has already considerably reduced the shortfall compared to last year’s record result. It is still the case that more capital could be invested if there were a sufficient supply of suitable properties. Market supply levels together with the small number of new or fully renovated properties in the project pipeline will also continue to have a limiting effect on transaction volume growth. However, numerous, and in some instances large, transactions are still in progress this year. “We don’t expect the transaction volume to reach a new record level in 2016, but a volume of up to €50 billion is achievable depending on the speed at which deals are concluded. From a historical viewpoint, this would then rank 2016 in third place behind 2007 and 2015,” said Tschammler. “The investment cycle is at a late stage and it will become increasingly more challenging even for property investors to generate an attractive return. Even though there is growing criticism from pension funds, insurers and banks over the ECB’s ultra-loose monetary policy, we do not foresee a real crisis scenario in the medium term that would impact the property markets in such a way that a collapse or even a crash could occur. However, more than ever before the focus should be placed on the lettings market cycle. As long as this remains in its current good state, the lights are still at green for an investment in the German property market,” added Tschammler.

Large transactions in strong demand – Commerzbank tower sold in deal negotiated by JLL
It was again evident in the third quarter that investors were especially on the lookout for large transactions. Between July and September alone, 38 properties and portfolios exchanged hands for more than €100 million. This was eight more than in the whole of the first six months of the year. Accumulated over the first three quarters, these large deals generated approx. 44% (€14.4 billion) of the transaction volume in Germany. Portfolios and individual properties made equal contributions to this result in terms of the number of deals. Four of the five largest transactions in 2016 were closed in the third quarter. These included the sale to a French investor of a large portfolio including 68 nursing and old people’s homes across Germany for €1 billion; the sale negotiated by JLL and notarised of the Commerzbank tower in Frankfurt am Main for more than €650 million; and the acquisition of a portfolio of nine office properties by Patrizia Immobilien AG.
In terms of the different asset classes, around 40% (about €13.1 billion) related to office properties, followed by retail with 25% (€8.1 billion). The remaining share is distributed among hotels with almost 8%; warehouses and logistics properties (almost 10%); and mixed-use properties with around 7%. The other 10% comes primarily from specialist properties such as nursing and old people’s homes. “As investors search for attractive and lucrative alternative options, from which they can expect a higher yield, we see a steady rise in demand for properties that fall outside the established uses,” stressed Helge Scheunemann, head of research at JLL Germany. Scheunemann added: “Investors have confidence in the German investment market across all asset classes. Foreign investors also still regard Germany as an investment destination and clearly expect to obtain an attractive return. In the first nine months of 2016, foreign investors maintained a high level of activity in Germany.” They accounted for a 40% share of the transaction volume, and were also responsible for 11 of the 20 largest deals. The recent quarter also saw no change in terms of the origin of investors. On the contrary, the traditionally strongest three sources of capital - the UK, U.S. and France - may even have expanded their dominant position further. Irrespective of the question asked by many investors as to whether the current price of commercially used properties still seems likely to rise, JLL has not discerned a decline in interest among domestic or foreign investors in this property asset class. “The majority of institutional investors are even planning to expand their property commitment in the short- to medium-term. Internationally active funds in particular have just started to reallocate capital to property from other asset classes, and this trend is expected to continue in view of nominal returns of around 0% from government bonds and even negative returns from company bonds,” said Scheunemann.

Transaction volume falls in the Big 7 – increased interest in deals outside the strongholds
The Big 7 cities still accounted for around 55% of the transaction volume in the previous year, but their share has now fallen to around 51% (€16.7 billion). This shows that investors are redirecting their range of activity to areas outside the established markets, especially in relation to retail, logistics and specialist properties. The situation is different for office properties: of the €16.7 billion invested in the Big 7, office properties accounted for the lion’s share with investments of more than €10.5 billion. In other words, 80% of the capital invested in office property throughout Germany is one of the Big 7 markets.
At the end of the third quarter, Berlin and Munich topped the Big 7 ranking with around €3.4 billion each. Hamburg was next in line with €3.2 billion. However, all three markets lost ground compared to the previous year, ranging from minus 33% in Berlin to minus 8% in Hamburg. The transaction volume also declined in Frankfurt am Main, with a fall of 26% year-on-year to €3.1 billion. “Although some suggested that Frankfurt would be one of the beneficiaries of the Brexit vote, this has not (yet) been confirmed for the present at least. However, especially in Frankfurt it is still the case that a few large projects are in the pipeline, indicating that a strong final quarter could be on the cards,” stressed Pörschke.
Cologne was the only city in the Big 7 to achieve growth compared to last year due to an exceptionally strong third quarter, with a few transactions in the prime segment. The transaction volume increased by 27% to approx. €1.3 billion.

Further sharp decline in yields  - the “3” before the decimal place becomes the norm
Around 20 years ago, a 3.X% yield for an office property would probably have suggested a property bubble. At the same time, we would have been surprised at a 0% return on a government bond and discarded it as an unrealistic offer. In fact, this is the current reality on the German investment market. All market players, banks and investors must now accustom themselves to the fact that “3 is the new 5”. “Thus we can argue that German commercial property has become expensive, but the high prices can only be seen within the context of the historical development. Under the current market conditions, and in view of the prevailing low interest rates, attractive returns on equity can still be achieved even with such low interest rates,” commented Scheunemann.
After already falling by 20 basis points in the second quarter to an average of 3.93% for the Big 7, strong investor demand in the months from July to September caused a further, sharper decline in the prime yield by 22 basis points to 3.71%. Above-average declines in yields were registered in Stuttgart (by 65 basis points) and Berlin (by 40 basis points). Only Düsseldorf and Frankfurt were still above 4%, with net initial yields of 4.10% and 4.15% respectively. “Such declines would suggest that these are isolated instances of extreme prices . However, we observe that, on the contrary, this development is reflected across the board and within bidding processes, and we therefore consider these returns as being in line with the market,” said Tschammler.
In principle, this assessment also applies to other asset classes, although not to the same extent as in the office property segment. Yields for commercial buildings in city centres fell by 13 basis points to an average of 3.57% in the Big 7. For shopping centres and retail warehousing parks, yields have remained at 4.10% and 5.10% respectively, while yields for retail warehouses  dipped slightly by 5 basis points to 5.45%. Following a brief respite in the previous quarter, investors again become more aggressive on prices in the warehouse and logistics property segment. The average yield for the Big 7 logistics centres is heading towards a 4 before the decimal place: at the end of the third quarter it stood at 5.1%, which was 26 basis points lower than at the end of Q2.
“Since the financial conditions are unlikely to change in the fourth quarter, we expect office yields to drop a further 10 basis points by the end of the year. The overall return from value changes and rental returns will be more than 23% this year and will therefore be more than twice as high as in the boom year of 2007,” said Tschammler.