GPP says mid-year market activity “highly differentiated” across Big 7

Nationwide consultancy network German Property Partners (GPP) released its latest commercial real estate investment market report for Germany’s Top 7 cities for the second quarter of 2021.

The mid-year transaction volume of €12.5 billion was just 1% below the previous year’s performance and heralds a return to overall stability in the first half of 2021. However, a glance at activity in the individual city markets Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich shows a widely differentiated picture, with year-on-year changes in a wide range between -46% in Hamburg and +97% in Munich. 

There is a significant polarisation in market dynamics. For example, the +33% increase in transaction volume in Cologne was driven by the sale of large complexes, including The Corner Cologne and The Spikes by Proximus and Quantum to a Hines fund for around €100 million. Transaction volume increased by 24% in Berlin, where the sale of the Fürst at Kurfürstendamm 206-209 by Vivion to Aggregate Holdings for over €1 billion created something of a special effect, which was also experienced in Munich with the sale of three big ticket properties for over €500 million each, contributing to the record growth of +97%. The Düsseldorf market regained some stability in the second quarter of 2021 but the historic low at the start of the year meant a year-on-year fall in transaction volume of -42%. 

The weak start to the year in Hamburg (-46%), Frankfurt (-34%) and Stuttgart (-29%) continued into the second quarter, and the continued scarcity of Core product limited a higher transaction volume. “Such differentiated market activity in a second half year would be very unusual in the commercial property investment market”, says Oliver Schön of GPP. “As the special effects in Berlin and Munich show, demand for Core properties remains high and new benchmarks are being set whenever attractive products come onto the market. Such special effects are untypical and it is anticipated that market indicators will return to some normality over the further course of the year.” 

The share attributable to portfolio deals is again low, contributing just 11% of total volume in H1 2021. The only exceptions are in Cologne and Stuttgart with over 20% each. Although the share of transaction volume attributable to international investors fell significantly in the first quarter of the year and remained negative in four of the Top 7 cities, they had accounted for some 37% overall by the end of the second quarter. 

With the exception of Berlin where mixed-use properties (51%) took over from offices (35%) as the most transacted asset class, offices were in greatest demand in all other Top 7 locations, particularly Munich with a share of 83%. 

Prime yields have remained stable between the first quarters of 2020 and 2021. The high demand for Core properties kept the overall prime office yield unchanged at around 2.88% (-0.05%). The strongest compression was in Hamburg with -0.20% down to 2.60%, the lowest level of the Top 7 cities. There was a significant fall in prime yields for industrial and logistics properties with -0.31% down to 3.75%, the greatest falls being in Cologne and Stuttgart with -0.50%.

GPP anticipates a reinvigoration of market activity in some locations in H2 2021, particularly in Hamburg, Cologne and Frankfurt, where large-scale transactions will drive increased volumes. “There is still a shortage of product on the market, even compared with pre-corona levels”, says Schön. “At the same time, investors are desperately searching for attractive investment properties, which could put yields under further pressure going forward.”

German Property Partners (GPP) is a German network of leading local commercial real estate services providers, including Grossmann & Berger, Anteon Immobilien, Greif & Contzen Immobilien, Blackolive and E & G Real Estate. The association currently numbers over 410 real estate specialists, who advised on lettings of around 462,800 m² and a transaction volume of around €2.45 billion in 2020.