Wüest sees strong German second half on fundamentals

The latest half-yearly report from valuation and market consultants Wüest & Partner Deutschland provides a buoyant outlook for transaction volumes in German commercial real estate through the end of the year. The key drivers are the increasing willingness of corporates to invest, the demand for luxury labels in top retail locations, and the surge in online sales boosting the logistics sector.

The consultants’ latest German market outlook “Investmentmarkt Deutschland” point to the office sector as remaining the favoured asset category. According to Wüest’s managing director Sven Graven, “For the second half of the year, we expect significantly more construction activity, which in turn will lead to higher space turnover.” Last year, the biggest increase in leasing volumes was in the retail sector, up 54% on 2012, mainly driven by demand from luxury labels which were trying to position themselves early at sought-after locations and to ride the wave from the uptick in the economy.

The rise in online activity is helping to drive both retail and logistics, as retailers experiment with new in-store concepts to attract and keep customers in their stores through sophisticated design, while more and different types of logistics properties are in demand to provide more immediate and/or timely customer deliveries.

In the office sector, in particular, a further study crossing our desk here at REFIRE points to further growth indicators, with good prospects foretold for Berlin, Hamburg and Munich.

The German Society of Property Research gif and the Center for Real Estate Studies CRES of the Steinbeis private university in Berlin forecast in their latest half-yearly report that office rents in Hamburg, Berlin and Munich will show the best performance nationwide of the big cities, with increases of 0.9% to 2.2% over the coming two years.

The report, established in collaboration with the Mannheim-based ZEW (Zentrum für Europäische Wirtschaftsforschung), was based on a survey of 15 professional researchers and their quantitative models, as in the previous four years.

The report showed that prime yields have almost reached their lows, however, with only Berlin, Hamburg and Frankfurt having potential for further compression, of around 20bp. Yet the experts predict that prime initial yield across the largest five cities will hold stable at below 5%, and most see this holding below 4.5% in Munich. “The prognoses underestimated last year’s market dynamics,” said Dr. Jaroslaw Morawski, one of the researchers surveyed.  .

The Düsseldorf and Frankfurt office segments in particular exceeded the expectations of most of those surveyed, who now predict both cities to stagnate until 2015. They view other big cities as set for slight falls in vacancies and a small rise in prime rents.