According to the latest research by Savills the total transaction volume for Germany’s commercial property market reached €30.4 billion in 2013, representing a rise of 20% year-on-year (yoy) and the highest investment volume since 2007 when a total of €56 billion was achieved.
According to the latest research by Savills the total transaction volume for Germany’s commercial property market reached €30.4 billion in 2013, representing a rise of 20% year-on-year (yoy) and the highest investment volume since 2007 when a total of €56 billion was achieved. The international real estate advisor notes that, similar to 2012, the final quarter of 2013 was by far the strongest recording an investment volume in excess of €11.4 bn.
Andreas Wende, head of investment at Savills Germany, says: “Strong economic parameters in Germany combined with the low interest rate environment have enabled the highest transaction volume since 2007. In 2013 we began to observe a higher risk appetite from investors and we expect this trend to continue in 2014, resulting in a rising transaction volume in the value-add and opportunistic segment.”
Savills suggests that increased investment into office properties is evidence of this rising risk tolerance. Investment into this sector rose by 61% yoy to €13.3 billion pushing retail transactions, which have recently been the preferred asset type perceived as offering stable cashflow and unaffected by cyclical developments, into second place. Due to a lack of supply and despite ongoing strong demand the volume of retail deals only recorded a slight yoy rise (+1%) according to Savills data, totaling just below €10 billion, corresponding to a market share of 33%. Investments into development sites and hotels also recorded increased activity rising by +22% to €1.2 billion and +21% to €1.4 billion, respectively.
The firm notes that strong demand combined with a lack of core properties available on the market resulted in continuously rising prices and contracting yields throughout 2013. With the exception of Munich, where prime office yields are already low at 4.3%, prime yields in this sector decreased once again across the top six markets (Berlin, Munich, Hamburg, Düsseldorf, Frankfurt and Cologne) by another 10 to 20 basis points to 4.6% on average at the end of 2013. Prime retail yields also continued to drop marginally to 4.1% on average across these markets.
Savills observes that these rising prices have had an effect on buyer profiles. Similar to 2012 open-ended special funds represented the largest group of buyers in 2013 and have raised their acquisition volume by 73% to almost €6 billion. Listed property companies and REITs invested €2.8 billion (+26%), insurances and pension funds (+29%) and private investors and family offices (+20%) follow at €2.5 billion each. Private equity investors purchased real estate worth just over €1 billion last year, and also acted as vendors on another €1.7 billion of transactions.
Matthias Pink, in the research team at Savills Germany, adds: “Private equity investors are taking advantage of the high price level to make profitable sales. At the same time this investor group is making new acquisitions on the higher risk end of the market.”
Savills research shows that in 2013 overseas buyers invested significantly less than the year before, decreasing their share of the transaction volume to 33% from 46% in 2012. Middle Eastern and Asian buyers were the only overseas investors to increase their yoy investment volume into the German real estate market (€1.36 billion in 2013 against €1.05 billion in 2012). Andreas Wende explains: “Over the coming years we expect interest from Asian and Middle Eastern buyers to increase further as they look for diverse but safe investment opportunities.”
Both domestic and foreign investors favoured Germany’s top six markets in 2013, pushing the market share of these locations to 55%, up from 50% in 2012, according to Savills. The transaction volume invested in these top six locations amounted to €16.7 billion in 2013, representing a 31% increase yoy. Munich ranks top accounting for a transaction volume of €4.63 billion, followed by Frankfurt (€3.45 billion) and Berlin (€3.22 billion). The German capital, which recorded an exceptionally strong transaction volume in 2012, saw a 25% yoy decrease in 2013, whilst the remaining locations recorded significant increases in turnover.
The firm believes that current parameters suggest the German commercial investment market will remain highly dynamic in 2014 with the low interest rate environment expected to prevail throughout the year and economic growth set to rise. Whilst the lack of prime product continues to be a limiting factor, the commercial investment market is on track to achieve a transaction volume of €30 billion as activity on the higher risk end of the market is likely to increase further.
View the German investment market 2013