German multi-let commercial property transactions jump 75%

Investment transaction volumes in the German multi-let commercial property segment jumped 75% to €1.6bn in 2014 on a year-on-year basis, according to specialist real estate research consultancy BulwienGesa. The consultants presented the second edition of their comprehensive study of the sector, Initiative Unternehmensimmbolien, at the MIPIM in Cannes in March.

Multi-let commercial properties – known as Unternehmensimmobilien in German - typically refer to buildings with medium-sized companies as tenants. Types of use normally include offices, warehouses, manufacturing, research, services and/or wholesale trade and clearance space (see our article on BEOS, above).

High demand reduced yields in the segment as 480,000 m2 of space was leased in the second half of 2014, boosting cash flow. “Unternehmensimmobilien assets are gradually developing their own market share. This is partly due to improved transparency,” said Andreas Schulten, CEO of Bulwiengesa and publisher of the Initiative’s latest market report. The total transaction volume of €1.62bn was 75% higher than in 2013.

Multi-let commercial and light industrial properties accounted for around 4% of the total of €40.5bn of real estate investment in Germany last year, up 0.5% on 2013.

Schulten said the pool of  data providers for the Initiative’s reports has expanded recently with the addition of Corpus Sireo, Garbe Logistic and Investa, three leading players in the German real estate industry. They joined founding members ATOS, Aurelis, BEOS, Hansteen, GSG Berlin, Segro, Sirius and Valad.

Within the segment, converted properties accounted for the largest single category of transaction among Unternehmensimmobilien, with sales worth over €500m – up by 30% on the previous year. In the latter half of 2014 alone, sales of €343m were recorded for converted properties. Business parks were another popular choice, attracting investments of €480m – a year-on-year increase of 140%. In fact, all four categories saw a significant rise in demand compared to 2013, with the sales volumes for production facilities and warehouses/logistics properties rising by 64% and 125% respectively.

For definition purposes of what constitutes “Unternehmensimmobilien”, Schulten clarified, “The Initiative Unternehmensimmobilien does not take large-scale facilities for contract logistics into account. Instead, it focuses on smaller integrated units. This is in contrast to logistics market reports that tend to document large-volume warehouses without including Unternehmensimmobilien.”

Overall, the types of assets included in the segment “Unternehmensimmobilien” still offer relatively high yields. The four categories – converted properties, business parks, production facilities and warehouse/logistics properties – delivered average gross initial yields of 9.6% last year. The last category, warehouse/logistics properties, offered the lowest yield at 8.9%, while business parks returned 10.6% due to still relatively low purchase prices.

“Looking at average values is just one side of the coin,“ says Schulten. “There was a noticeable yield compression of top yields in the latter half of 2014.” Business parks showed the highest number of transactions was business parks, with prime yields sinking to 5.7% This was closely followed by converted properties with 5.9%. Manufacturing facilities and warehouses/logistics properties were close to one another and recorded relatively high maximum returns of 6.5 % and 6.7% respectively.

“This clearly underlines the level of competition for first-rate properties in Germany,” said Schulten. “There is scope to reap these kind of yields in Unternehmensimmobilien, but only for properties with exceptional potential.”

In the letting market, the largest jump in rents was in manufacturing facilities with highs of €7.10 per sqm. Increasingly, these are high-quality, specialist spaces that are more expensive than properties required for simple production processes. Prime rents for warehouses and small-scale logistics facilities also rose strongly, with rents of up to €12.50 per sqm. recorded. These levels are achievable in particular when logistics properties are part of a business park or a converted property and offered in combination with other types of space (e.g. offices). Prime rents for flexible real estate (flex spaces) also increased marginally, with the current maximum value standing at €10.60 per sqm.