Investment in German commercial property surges in Q1

Reports coming in from all the major broker groups confirm the surge in German commercial real estate investment over the first quarter, which hit €9.9 billion in the first quarter of this year, representing a 40% increase in turnover year-on-year and the second strongest first quarter ever recorded after the boom period of Q1 2006.

A new report published by broker Savills shows that the strong level of transactions seems to progressing seamlessly from the significant market activity seen in the final quarter of 2013, traditionally the busiest period, when the market reported an investment volume of over €11.4 bn.

According to Andreas Wende, COO and head of investment at Savills Germany, “The ongoing favourable financial and economic parameters are increasingly joined by a rising risk-embracing attitude of investors so that the investment market in Germany is now definitely no longer limited to core. This broader market activity is reflected in another year-on-year increase of the transaction volume.”

Every sector saw higher transaction volumes against the same period in 2013, with the most significant increase recorded in the warehouse and industrial segment (+154% year-on-year), followed by the office sector (+64% year-on-year). Nearly all sectors were boosted by portfolio deals, which accounted for over €4.3bn of turnover according to Savills, representing 44% of the total turnover.

These portfolio transactions were a key contributor to a significant rise in turnover recorded outside Germany’s top six markets of Berlin, Hamburg, Frankfurt, Düsseldorf, Cologne and Munich. Outside these markets the Q1 2014 transaction volume doubled to €6.4bn, from €3.2bn in Q1 2013, of which almost €3bn was attributable to portfolio transactions.

By contrast turnover in Berlin, Düsseldorf and Frankfurt recorded a decrease of between 8% and 29% against Q1 2013 whilst Hamburg, Cologne and Munich recorded a year-on-year increase in investment turnover of between 12% and 17%.

According to the research the majority of the property portfolios were purchased by international investors in this period, increasing their market share to 55% (€5.4bn), up from 38% in Q1 2013. Of these buyers, private equity funds represented the most active group investing almost €1.5bn into commercial real estate in Germany in the first three months of the year.

The Savills figures are not too far away from those from rival property advisor CBRE, whose figures show first quarter German real estate investment rising by 47% to €10bn, helped strongly by significant portfolio sales. With Germany continuing to appeal as a safe haven for global investors, CBRE is adjusting its full-year forecast sharply upwards.

“Given the dynamic start, we see our prognosis for a full-year transaction volume of significantly more than €30bn confirmed,” said CBRE Head of Research Germany Jan Linsin. “While the market remains characterised by a supply bottleneck in the prime segment, investors’ risk appetite should rise in view of the outstanding fundamental data.” Linsin sees more portfolio sales and investments into the so-called B cities and prosperous regional cities in focus. In the first quarter, portfolio sales gained 86% to over €4.3bn, thus taking a 44% share, up from 35% in 1Q13. CBRE’s researchers noted 16 deals exceeding €100m, the largest of which is Patrizia’s acquisition of the Leo I portfolio with 18 offices in Hesse valued at around €1bn.

Added Fabian Klein, CBRE’s head of investment: “Cross-border investments of over €5.2bn document the high confidence foreign investors have in the local property market.” Strongest international investor group is the US with 19.9%, then the UK (10.9%) and France (7%). Office remains the most popular asset class, accounting for 52% of volume followed by retail (26%) and logistics, where investment doubled to €1.3bn. The share of the five largest cities contracted to 35% from 54%. The most lively market is Munich, with a volume of €1bn, followed by Frankfurt with €674m and Düsseldorf (€645m). Prime yields continued their decline - to between 4.45% for offices in Munich and 4.7% in both Düsseldorf and Frankfurt.