2016 expected to be "slightly lower" than record year of 2015 - JLL

Demand for German office, retail and logistics properties was so high in 2015 that transaction volumes reached record level of about €55bn, surpassing even the pre-crisis year of 2007. 2016 is also shaping up to be a huge year, if likely somewhat below last year, according to JLL's wrap-up presentation of the year, held recently in Berlin.

Speaking at the presentation, JLL Deutschland's CEO Frank Pörschke also highlighted how the gap between the leasing markets and the investment markets have narrowed, with demand for office space increasing by 8% to its highest level since 2011. Rents rose 4% and the office vacancy rate in Germany's Big 7 cities dipped by 0.7% to 6.9% over last year, the lowest level since 2002.

Yield compression in the office sector of around 10bps is expected in 2016 by the JLL researchers, although yields in other asset classes could fall more strongly, including to around 5% for logistics assets, said Pörschke. Rents meanwhile are set to rise, so that capital values for offices in the seven largest cities should increase by 11% in 2015 and 2% in 2016 as tracked regularly by JLL's own VICTOR index, which REFIRE frequently reports on in these pages.

Last year, investors showed a marked preference for large transactions. By end-October, one third of all deal volume involved transactions above the €500m mark. Office properties led the field with a 40% share, follwoed by retail assets at 35%. The remaining 25% was spread among hotels, mixed-use assets and distribution and logistics facilities.

A highlight was the capital Berlin, which alone attracted €7bn investments, or almost a quarter of the amount invested in the Big 7 cities. At the same time investments outside the seven largest cities rose disproportionally, by 60% over 2014, as investors showed themselves increasingly open to taking on more risk.

The three biggest transactions were the Potsdamer Platz in Berlin (€1.3bn), the Frankfurt office tower Trianon (€540m), and the Eurotower in Frankfurt (€480m). The biggest retail transaction was the sale of the Kaufhof-Galeria group for €2.4bn to the Canadian group Hudson's Bay.

Foreign investors accounted for more than half the investment volume, led by the US, the UK and France. Asian investors were not yet as predominant in the biggest transactions as supposed, said Pörschke.

Opportunistic, value-add and core plus investments rose by over €5bn to €28bn.
Residential investment volume is also heading for huge growth last year, by 130% over 2014 to up to €30bn – a result only surpassed by the one in 2007.

"Companies remain optimistic in this market, despite fear of terror, geopolitical conflicts, a potential economic crisis in China or modest interest rate rises in the USA", said Pörschke. Even if interest rates rise, Germany will remain unchanged within Europe as in the focus of global real estate decision-makers and investors. 2016 – the seventh year of the upswing in real estate markets – Germany should still see transaction volumes of about €50bn, he forecast.