Record first half for German retail at nearly €10bn

New figures just in from property brokers CBRE confirm that foreign investor interest in German retail real estate remains undimmed. Compared to last year's first half, total investment volume in German retail more than doubled in the first six months to €9.8bn – fuelled by foreign investors, at over two-thirds of the volume, nearly twice as much as last year's 36% share.

Despite a shortage of supply of properties, CBRE says it nonetheless expects full-year figures to top €15bn.

According to Jan Poppinga, CBRE's head of retail investment, Germany's broad structure is playing into investors' hands at the moment. “Due to its federal structure, Germany offers a multitude of interesting investment locations outside the large centres, which are increasingly on investors’ as well as retailers’radar,” he said. The top five cities still saw investment rising 57% to €1.8bn.

A couple of major transactions do distort the figures somewhat. Of the total, high street retail accounted for 38% of the overall total, largely due to the takeover by Canada’s Hudson’s Bay Company of the Kaufhof department store chain from Metro AG. That deal includes 43 buildings that Hudson's Bay sold on to a joint venture with US Simon Property Group. Swiss Corestate also bought 35 assets in mid-sized cities. “This transaction represents the trend that investors – principally due to a lack of product in investment centres – are increasingly engaging in B-cities with higher risk-adjusted returns,” said Poppinga.

Shopping centres took up 29% of total, driven by French Klépierre’s Corio takeover that included five German malls. Canadian pension fund CPPIB also took a 46.1% share in mall developer and operator mfi from the Franco-Dutch Unibail-Rodamco.

The share of retail warehouses remained stable at 29%, mostly part of portfolio deals. Augsburg-based Patrizia bought three portfolios for €286m from Fortress subsidiary Eurocastle, and US hedge fund Marathon bought 61 discounters and supermarkets from Brookfield.

The most active buyer group in the first half were listed property companies, responsible for almost half. International investors took 72% of deals, significantly above 1H14’s 47%. Investors from Canada and France led the field. According to Jan Linsin, CBRE's head of research, “We are watching an increasing trend towards corporate takeovers and participations in order to get at sought-after retail property, and to fulfil envisioned property quotas.”

Given the high level of demand, it's not surprising that net initial yields remain under pressure. The CBRE figures show that Prime mall yields in the top markets fell by 20bps to 4.3%. Average net initial yield for high street assets in the Top Five cities is 26bps below 1H14 at 3.86%. Malls in secondary locations are posting a 5% yield, while modern retail centres yield 5.4% aross the country as a whole.