German shopping-centre yields fall to under 4%

Demand for German shopping centres was so high in 2016 that yields have fallen to a record low of 4%, and a new study by JLL sees this falling to 3.9% by the end of 2017, against the background of continued low interest rates. Yields of 4% are lower than the previous record lows of 2007.

Last year, according to JLL, investment volume in shopping centres was €3.6bn, 35% less than in 2015 (CBRE's figure is €3.9bn). Average deal volume was smaller at €61m, instead of €73m in 2015; the portfolio share of total transactions remained steady at 30%.

According to Sabine Keulertz, JLL's team leader for shopping entre investment in Germany, lack of supply will become very apparent in 2017, "with demand now clearly outstripping supply by a big margin."

A big problem is the lack of new shopping centres coming on stream, with only 64,000 sqm of new shopping centre space opening in the first half of 2016, fully 50,000 sqm less than in the same period in 2015, according to figures from Cushman & Wakefield.

Over the last twenty years an average of ten shopping centres a year have opened in Germany. At its peak in 2001, twenty-one centres opened. In 2017 it is likely to be four, according to consultants EHI Retail. They are Dorotheenquartier Stuttgart, Dreiländergalerie Weil am Rhein, and smaller centres in Neutraubling and Halver (for EHI a centre should have officially 10,000 sqm of lettable space or more to qualify as a full 'shopping centre', rather than a 'Fachmarktzentrum', or retail park.)

Germany has a total of 479 shopping centres with a total of 15.4m sqm, according to EHI's Marco Atzberger. "The market is moving from a boom phase to a mature phase", he says, with much more money flowing in future into centre refurbishment than into new-build.

While foreign investors made up 57% of investment volume in 2015, last year German domestic investors accounted for 56% of volume, with portfolio deals in the majority. Two-thirds of the foreign investment came from USA, UK or Swiss firms. JLL notes in its report that over the last twelve months, many bidders have been raising their bids strongly in the second bidding round to have a chance of winning,

One major shopping centre being put on the market right now is the Rhine-Ruhr Zentrum in Mülheim, North Rhine-Westphalia. The 110,000-sqm centre is owned by Blackstone and is one of the Top 10 centres in the country. The price, at about €300m, is likely to attract the biggest retail players such as Klepierre and Unibail-Rodamco to its biding process starting early-March.

The centre was previously owned in a joint venture with Hamburg-based centre operator ECE which had a 10% stake. Blackstone then took full control in 2013, and re-financed the centre in 2014 with a €210m loan provided by Helaba and LaSall Investment Management. The new buyers would be free to bring in their own management company, independent of any Blackstone agreements.