German CRE investment rises 29% at 9-month stage

A new note issued by property advisor NAI Apollo shows how commercial real estate investment in Germany continued to power ahead in the third quarter, particularly in the office and retail sectors. Transaction volumes in the market for the first nine months rose fully 29% over the same period last year to €19bn, while third-quarter investment at €6.1bn was 16% up on last year.

According to Konrad Kanzler, head of market research at NAI Apollo, "To date, the office segment accounted for the biggest share of investment volume at 44.9% (€8.57bn), which represents a plus of 33.7% over 2012."  Next came retail at €6.68bn, up 48.5%, while warehouse and logistics saw a volume of €1.72bn.

"Among the portfolio transactions in the third quarter were the purchase of the Monsoon portfolio amounting to €224m and the sale of the GAF portfolio for €312m, both of which were acquired by Cerberus." These and other package sales meant the share of portfolio deals relative to total volume remained stable at 25.4% (€4.84bn). Individual deals amounted to €14.25bn or 74.6%.

Where are the buyers coming from? German investors' share of the investment volume remained almost constant at 66.5% (€12.70bn), said the NAI Apollo researchers. "US investors showed the biggest increase, raising their share from mid-year to the end of the third quarter by 3.7% to 9.1% or €1.74bn. That is more than three times as much as last year. We've also seen a significant increase among South Korean and British investors."

With a share of 37.2% or €7.11 bn, the biggest volume of deals was in the investment segment between €100m and €500m. These were acquisitions predominantly made by German and British investors. The second-highest volume of investments was in the price range between €50m and €100m (20.0%).

"The investor group of open-ended and special funds continued to be responsible for the largest share of the investment volume at €4.69bn, or a market share of 24.6%,“ Kanzler explains. The second-strongest group of buyers – insurance companies and pension funds – accounted for a volume of 14.1% or €2.69bn, which was 64% higher than its result for the first half of the year. By buying a number of portfolios and NPLs, private equity funds increased their share of 10.2% in the second quarter, up to 12.9%. This was an absolute increase of 86% up to €2.47bn. On the vendor side, project developers dominated with 25.1%.

Yields are, not surprisingly, falling. The researcher say that the unbroken demand for German industrial properties can be seen in the partially falling top returns. The heavily demanded segment of logistics real estate showed a drop in top yields of five basis points in all venues except Berlin (7.10%). In the office asset class, the top returns also fell by five basis points in Frankfurt am Main (4.85%) and Düsseldorf (4.90%). The office venues of Berlin (4.90%), Munich (4.65%) and Hamburg (4.70%) managed to stay stable. In retail, the top yield only weakened slightly (five basis points) in Frankfurt am Main (4.35%). The other top five locations remained stable.

The report ends on a bullish note: "In the coming months, in addition to continued strong demand from open-ended and special investment funds, insurance companies, pension funds, real estate corporations and once again private equity funds will be increasingly active on the investment market."