2013 German investment volumes to outstrip last year

Total turnover in the German commercial real estate market could reach €30 billion in 2013, outstripping the 2012 volume of around €25.3 billion, according to property adviser Savills.

The forecast rise is based on expectations that transaction volumes will be high in the second half of the year due to a number of active major deals as well as an anticipated increase in activity in Berlin. A further rise in the real estate transfer tax is set to take effect in the German capital in 2014.

Around €12.5bn was invested in German real estate in the first half of 2013, marking a 36% year-on-year rise and representing the strongest half year since H12008, when a volume of €12.9bn was recorded.

“Germany’s exceptional economic position is increasingly reflected in the local investment market and real estate as an asset class is becoming increasingly attractive the longer the interest rates remain low,” commented Marcus Lemli, head of Savills Germany and head of European investment.

Savills notes that there is ongoing demand from risk-averse investors who are looking to buy assets that retain their value in economically challenging times. Insurance firms, pension funds and superannuation schemes, which accounted for direct real estate investments of €1bn in the first half, illustrate this trend. Since 2011 this group has bought about €5.7bn of commercial assets, with at least as much spent on indirect investments through funds and other vehicles – making up a fifth of all investment. The insurance companies themselves make up more than half of this vojume.

The Savills data also reveals that private investors and listed property companies each accounted for €1.3bn of investment in the first half. Developers were by far the most active party on the sell-side, divesting property worth over €2.3bn, three times the total of the first six months of 2012.

Demand for core and core-plus assets still exceeds available supply according to the firm, causing yields to drop slightly in H12013.

Savills director of research Matthias Pink commented, “Currently the German property market with its manageable risk is extremely liquid, and never before has such a large amount of equity been available for investments into core product.”

Prime yields for both office and retail buildings in the top six German markets of Berlin, Frankfurt, Düsseldorf, Hamburg, Munich and Cologne have dropped by ten basis points on average, to 4.7% and 4.2% respectively. Yields for secondary offices in central business districts have likewise declined slightly to 5.5% on average, whereas yields for higher risk properties have remained unchanged.

The Savills data continue to highlight the differing expectations between many buyers and sellers. According to Marcus Lemli, “While there is a considerable surplus demand for core investments, buyers and vendors in the opportunistic segment still rarely come to an agreement due to differing price expectations.”

“Looking ahead, we do anticipate some further differentiation with buyers more likely to meet asking prices for properties that are more future proof, for example by means of a refurbishment. Owners of assets lacking such prospects will, however, be forced to revise their expectations downwards, possibly following pressure from the borrowers involved. Even if the gap between asking and bidding prices closes in different ways this will result in increased investment activity on the higher-risk end of the market.”