German retail parks – more deals, but of lower value
The transaction volume for German retail parks slowed noticeably in the first half of this year, primarily due to the lack of supply of suitable assets, according to broker JLL. There is a noticeable trend towards more deals, but the average deal size has sunk noticeably, says JLL in a new research note. However, the second half should see deal volume rise significantly again, as several major deals work their way through the market.
The market for specialist centres or retail parks ("Fachmarktzentren") anchored by supermarket or discount grocers was worth €2bn for the first six months of the year, says JLL, although there has been a clear trend to a larger number of transactions, with lower individual deal sizes. Portfolio deal sizes fell from an average of €80m to €57m, while individual deals sizes fell from €11.3m to €10.8m.
According to Sandra Ludwig, JLL's head of retail investment Germany, "Whereas last year the five biggest transactions made up 39% of total volume, this year they've accounted for only 34%." The total volume in the sector grew by 3%, well below growth rates in previous years. Of this, 74% were local German investors (up from 55% last year), with 26% coming from abroad.
"German investors seem to have adapted quicker to overall higher price levels and actual market conditions", said Ludwig.
German Spezialfonds were buyers of €600m worth of assets, not surprisingly given their preference for retail. Project developers accounted for €360m of sales, while corporates were almost exclusively on the sell side.
The JLL figures show that North Rhine-Westphalia and Bavaria have been the busiest states for deals over the past 24 months, with retail parks worth €700m being bought and sold in each state. These were followed by Baden-Württemberg, Hesse and Lower Saxony at volumes of between €500m and €700m respectively.
The ongoing demand for assets in the sector has seen yields falling further, with net initial yields of individual centres falling five basis points to 5.4%. However, overall yields are expected to fall further from 4.9% to 4.8% by year-end, says Ludwig.
JLL notes how active pension schemes and insurance companies have become in the sector, and who with their high levels of equity often have an edge over competitors in bidding wars.