The most popular investment category is the business park
Corporate real estate is a segment of the market in Germany that is not widely tracked by outside observers, partly because of a certain difficulty in accessing up-to-date data but also because of the lack of public accountability, with large industrial corporations using internal benchmarks to measure the efficacy of their bricks-and-mortar assets.
Still, the sector IS tracked, and research group bulwiengesa have just produced their latest semi-annual report on the investment market for company-owned buildings and other properties, mainly for industrial use.
The study is commissioned by the Initiative Unternehmensimmobilien, an interest group consisting of ten of the most active participants in the market - Alpha Industrial Developers, Aurelis, Aventos, BEOS, Cromwell Property Group, Frasers Property, Garbe Industrial Real Estate, Investa, Palmira Capital Partners and Siemens Real Estate. The common goal is to improve transparency in this market segment to facilitate access to this asset class. The ten share a reporting system in cooperation with bulwiengesa, who evaluates all the transaction and leasing date of the participants.
Investment demand remained weak through the first half of 2023, with little sign of a turnaround. Prices continued drifting downward, though bulwiengesa hinted at a bottoming-out being not far away, given the shortage of space in the commercial/industrial sector, with ongoing investor interest.
The first half of 2023 closed with a total transaction volume of around €950 million. The most popular investment category is the business park. However, yield pressure remains high, with the increase in yields continuing in the first half of 2023. In the prime segment, the gross initial yield is 6.10%. The demand for space from corporate property users remains high, particularly among owner-occupiers. At around 1.49 million square metres, the volume of take-up in the first half of the year rose by around 11.1% compared to the second half of last year.
At the same time, average and prime rents rose for all types of space. Prime rents for production space are being asked for up to €10.60 per square metre per month. The top rent for warehouse space of up to 500 sqm was €9.10, with some deals were done at €12.00 per sqm.
In terms of completion volume, the pipeline is well filled, say the researchers. However, in the current market environment, some projects already under construction are suffering delays.
In contrast to its residential housing markets, where the majority of Germans rent, it's a different story in corporate real estate, where German companies have traditionally preferred to own the buildings from which they generate their business. According to industry lobby group ZIA the average rate of ownership in Germany of a company's buildings is 75%, compared to only 25% in the USA, where the concept of third-party ownership or sale-and-leaseback is much more prevalent.
ZIA puts the value of corporate real estate - property owned by companies whose business is NOT real estate, at about €3 trillion, or about a third of the total value of real estate in the German economy. At about 960 million square metres, this is more than all German office and retail space together.
A study last year by consultants KPMG highlighted how woefully underprepared at least half of corporates are in respect of ESG issues, with almost no widely available standards to act as benchmarks for corporate property owners. And with 96% of corporate properties more than 20 years old, there's likely to be a lot of catching up to do, given that 10-20% of listed companies' costs are eaten up by property.
A further study last year by fund giant Union Investment showed that one in four DAX companies had no clear idea when they planned to reach carbon neutrality - offering enormous scope for all those advisors and experts in the 'future of work' to tap into the nascent demand for the enormous transformation needed to get Germany's workplaces fit for the new world. Energy efficiency, carbon reductions, adaptation to the new demands of electro- and hydrogen-mobility - these all represent new challenges to corporate managers for whom the management of their properties was traditionally viewed as a secondary or tertiary activity, well below the focus paid to the production of their core products. Accounting for yield and stand-alone profitability of their bricks-and-mortar assets was rarely seen as a priority.
