German investors favour Vienna over high-priced London

Austria’s capital Vienna replaced London as the favourite investment destination of German commercial real estate investors in the first five months of this year, according to research group Real Capital Analytics, which tracks capital flows.

Overall, German investors placed €3.9bn in international real estate markets over the period to end-May, while Vienna took the top spot as a result of five transactions with a combined value of €437m, RCA found in a new report. It was followed by Amsterdam and Warsaw. London, first placed last year, came in 10th in the city ranking.

“German institutions, particularly open-ended funds, are balking at the high pricing from the intense competition for a dwindling supply of grade A properties for sale in central London,” said Real Capital Analytics’ managing director for EMEA Simon Mallinson. “Instead they are looking at prime locations elsewhere in Europe and further afield for investment opportunities. Recent transactions by German investors show that European cities offer yields that are about 200bp above what is available for equivalent assets in central London.”

Meanwhile, from the other direction, international investors into Germany spent €7bn on properties since the start of the year. US investors were the most active buyers, led by Blackstone with the acquisition of the WestLB building in Düsseldorf and a logistics portfolio from Foncière de Régions. The largest portfolio deal was the UK’s Kildare Partners buying the €1bn Mars office and hotel portfolio of distressed assets from Deutsche Bank. The largest international single asset sale was Unibail-Rodamco’s purchase of a 50% interest in the CentrO Oberhausen shopping mall, which is valued at around €1bn.

International capital targeting German housing seems to be abating, though, said RCA. Some €434m deals were registered in the sector, following €3.79bn last year.

Total German transaction volume fell 9% in the first five months to €13.9bn, as investors seek opportunities elsewhere, said RCA. They are turning to smaller or less expensive assets in Germany’s seven largest cities, Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart, or to the best assets in the smaller B-cities.

“Keen pricing for safe haven, defensive real estate assets is persuading more investors to move up the risk curve,” said Mallinson. “Looking at Germany solely in terms of overall transaction volumes by value tells us only part of the story, whereas the number of smaller transactions is on the increase.” The key point, he said, was that the German commercial property market is returning to a healthier state after the recession and financial crisis.