Savills highlights mid-size German towns for portfolio diversification

Investors should intensify their search for urban commercial buildings outside the traditional hunting grounds of the biggest metropolitan areas in Germany, suggests the latest issue of the "German High Street Index" from Savills Investment Management, which examined 120 cities in Germany.

The top five spots were held by the "Big 5" Munich, Berlin, Frankfurt, Hamburg and Dusseldorf. In addition to Stuttgart (9th place), the remainder of the top ten was made up with medium-sized cities in Bavaria, including Regensburg, Passau, Rosenheim and Landshut.

Some surprising cities to take the other spots were Würzburg (11), Kempten (12) Aschaffenburg (17) and Bamberg (19). The study justifies investment in thes cities on the grounds of their strong local economy, high local purchasing powere, high centrality within their region, and sustainable income and population growth. Savills views these as particularly suitable for rounding out a diversified property portfolio.

The rating was based on four discrete municipal, socio-demographic, socio-economic and retail indicators. C and D cities in Southern Germany were able to score because of their strong middle class orientation, said Savills IM head of research Andreas Trumpp. The municipal indicators in particular, which are strongly focused on local enterprises and their development as well as the development of business tax, were decisive for the top spots.

According to Trumpp, "The overhanging demand from both institutional and wealthy private investors for inner-city commercial properties has compressed yields particularly in the A-cities to well under 4%. This can still be interesting, given the spread available over the risk-free government bond. Property investments are economically resilient, offer a certain security through stable cash flows, and are still very fungible given strong investor demand and the lack of replicable options."