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News Release


Investment market reaches new all-time high in 2017 - Transaction volume for commercial property exceeds €56 billion

Press release including overview table [PDF]​

Charts [PDF]


FRANKFURT, 4th January 2018 – The economic conditions for German commercial property investment markets remained uniformly positive during 2017. In addition to the continuing low interest rates, a thriving economy and strong lettings markets helped drive strong demand for investment products. Even the breakdown in exploratory discussions among the CDU/CSU, FDP and the Greens caused no harm to the German real estate market. In the view of property investors, political issues in any case have relatively little impact on their investment decisions.
“The essential criterion for investors is and remains the likely rise in interest rates, and what the implications of this rise could have for the investment market. After all, 2017 marked the tenth anniversary of the start of the last major financial crisis and, at least in terms of its monetary policy, the European Central Bank remains in crisis mode with its zero-rate policy. At the same time, the ECB has at least signalled that it will begin to implement its exit strategy — by halving the purchase volume of state and company bonds from January 2018 from €60 billion to date to €30 billion per month. Whichever way we interpret this decision, in my view it represents a first step towards the normalisation of monetary policy in the eurozone. A change in interest rates is not expected before mid/end 2019, however,” said Timo Tschammler, CEO of JLL Germany.
Tschammler added: “Demand is still present and intact, fuelled by the significant gap in yields that still exists between real estate and government bonds. The gap will narrow in the medium-term, but this will be caused by rising bond yields rather than rising property yields. It seems reasonable to assume that with a further narrowing of the gap, and when the difference between the two becomes much smaller than at present, the point will be reached when property no longer appears to be commensurate with the risks relative to bonds. It is likely that “traditional bond investors” such as insurers will then again turn their attention more to the bond market and focus less on the property market.”

Last year shatters 2015 investment record
The transaction volume on the German commercial property market amounted to around €56.8 billion, which not only matched the previous record in 2015 after just two years but exceeded it by €1.7 billion. Compared to 2016, this represents an increase of 7%. “A remarkable result considering the widely reported supply shortage and increased prices. The latter issue has two aspects to it, however. On one hand, it is to be assumed that some investors refrained from making an investment because prices were too high for them. On the other hand, the increased prices played a considerable role in enabling the transaction volume to reach a new record figure,” said Helge Scheunemann, Head of Research at JLL Germany. Scheunemann added: “If transactions carried out in 2017 were valued at 2015 prices, a new record level would not have been achieved in real terms since purchase prices have risen by a stronger rate than the 7% increase in the transaction volume.”
The scarcity of products was a feature of the past year, and was particularly evident in the office property segment. As a result, investors turned to markets outside the Big 7 — their share stood at around 21% by the end of the year — while more investors focused on the search for yields and attractive investment opportunities in project developments, although these are mainly to be found in the Big 7. These so-called forward funding arrangements for individual transactions doubled in volume within two years to account for 12% of the total transaction volume. The majority of these project developments have already been let, but this trend certainly appears to illustrate a certain acceptance of greater risk. From the investor standpoint, this is nevertheless a calculable risk given the strength of the office lettings markets.
In addition to the forward deals, a few billion-euro transactions also took place in 2017. These included the sale of the Logicor platform in the second quarter for more than €1.9 billion and the Sony Center deal for €1.1 billion in the third quarter. In the last quarter of the year, two portfolio transactions also fell between these two deals in terms of value: Signa acquired the RFR portfolio for about €1.5 billion and property changed hands between US-based private equity fund Apollo and Israeli investor Intown for about €1.2 billion. Five further transactions in excess of €500 million also ensured that the last quarter of the year made an above average contribution (€18 billion or 32%) to the transaction volume.
Little changed last year in terms of the “popularity scale” of the asset classes. Office properties remained in first place with an unchanged share of 44% compared to the previous year. This asset class accounted for almost €25 billion, which was the second highest transaction volume ever recorded after 2007. Retail property was again in second place. The share of this asset class fell to just over 20% and reflected the increasingly critical stance of investors towards this asset class combined with very long sales processes. In contrast, the strong demand for logistics properties was maintained in 2017. In particular, rising e-commerce trade boosted user demand and brought this asset class increasingly to the attention of investors. In 2017, around €8.7 billion was invested in logistics properties (roughly 15% of the transaction volume). In addition, an increasing number of so-called urban neighbourhoods and buildings with mixed use are being established, especially in central city areas. This is also reflected by the transaction figures: almost €5.4 billion (9%) was invested in such mixed-use properties.

Modest increase in demand in the Big 7 – foreign investors continue to favour Germany
By the end of 2017, the total aggregated investment volume in the seven major property strongholds of Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart. amounted to around €31 billion. This represents a slight increase of 5% compared to the previous year. Berlin remained the market leader with a transaction volume of more than €7.7 billion and year-on-year growth of 56%, followed by Frankfurt am Main with a volume of €7.1 billion. In Frankfurt, more than half of the annual volume was registered in the last quarter of the year. Düsseldorf (32%) and Cologne (41%) recorded significant increases compared to 2016, while Hamburg, Munich and Stuttgart registered significant declines.
Almost half of the commercial property transaction volume was generated by foreign investors (above the average value of the past 5 years at 45%). Foreign investors were involved as buyers in seven of the 10 largest transactions of the year. “In addition to the traditional capital sources such as the USA and UK, Asian investors have also expanded their activities in recent years and now account for a 10% share. Since they have also sold far fewer properties, they continue to expand their asset portfolios,” said Tschammler.

Yield compression continues to gather pace – office yield in Berlin falls below 3%
There was also further movement in yields in the final quarter of the year. The average prime yield for office properties across all seven strongholds stood at 3.27%, which is 12 basis points lower on a quarterly basis and 29 points below the value at end-2016. Berlin broke through the 3% barrier and ended 2017 with a 2.90% yield. Despite the ongoing discussions about online shopping, central commercial buildings in top retail locations in the big cities remain a popular, albeit rare, investment commodity. In this context, yields across the Big 7 fell to an average 2.93%. The net initial yield for individual specialist stores and shopping centres fell slightly at the end of the year and stood at 5.30% and 3.90% respectively. Well-positioned retail centres with a significant proportion of food retail tenants were again at the top of investor shopping lists. As a result, the prime yield in this segment also fell by a further 10 basis points to 4.60%. However, the sharpest decline in yields was evident in the logistics property segment. Here, the prime yield fell by 60 basis points to just 4.50% within the last 12 months.
“In combination with the rental growth, peak capital value growth in the double-digit percentage range was again achieved in 2017 for the third year in succession: around 14% for office properties, 12% for logistic properties and 20% for central commercial buildings,” said Scheunemann.
“So, what is the outlook for 2018? From today’s perspective, the situation looks generally positive. There are no grounds for supposing that the boom on the property market could turn into a downturn. The predicted and only recently upgraded general economic data signal further growth ahead, and the sector is generally well prepared for the future. The economy will continue to grow in 2018, and the lettings markets will therefore also remain strong and support investment decisions. So, at least for the next year, we do not see anything that should cause us to paint a negative scenario on the wall. With that in mind, we expect the transaction volume in 2018 to be in line with the 2017 figure,” said Timo Tschammler.