Savills IM High Street Index pinpoints fast-growing smaller German cities

Savills Investment Management says it can identify the most attractive retail inner-city commercial property investment locations in Germany using the Savills IM German High Street Index.

In addition to A-cities such as Munich, Berlin and Frankfurt, the index has calculated that fast-growing medium-sized cities in southern Germany represent fundamental value for investors – particularly cities such as Regensburg, Passau and Rosenheim, which benefit from factors such as a strong economic base, high local purchasing power, high centrality and sustained income and population growth.

The index uses a scoring model to analyse 120 cities in Germany. The objective of the index is to identify fundamentally attractive investment locations that are particularly suited to a diversified real estate portfolio. The scoring model is based on 16 indicators acros four differently weighted categories, namely local indicators, socio-demographic indicators, socio-economic indices and retail indices. Relative changes and index values are also relevant to the outcome of the calculation.

The index highlights the true dynamics of German medium-sized cities. The reason for this is the polycentric regional structure of Germany, which is usually based on a strong SME sector landscape supporting stable regional development. The higher-placed medium-sized cities benefit from above average indicators relating to the community environment as well as dynamic socio-economic and socio-demographic development trends.

Savills says its Index can deliver market insights, detailed analysis and market information for investors incuding availability of local, institutionally investable estates, the liquidity of individual sites or the geographical diversification of portfolios.

The local indicators are strongly focused on businesses, their development and the levels of business tax. They are almost exclusively centred in the C and D category cities from southern Germany. The prevalent middle class population in the region has a positive impact on the cities' scores and this is reflected in the indicator.

Andreas Trumpp MRICS, Head of Research Deutschland with Savills IM: "The excess demand for inner-city office buildings is driven by institutional investors and financially strong private investors. This has already pushed net initial yields in this segment, particularly in the A-cities, far below the threshold of 4%.

"Nevertheless, investments remain attractive in this segment, as the yield spread is at a consistently high level compared to 10-year German government bonds. They are safe economic investments and provide security through stable cash flows and are non-fungible due to the broad investment option and their non-replicable offer."