Last year marked another record year for the German real estate market, with €91.3bn of deals transacted, including residential assets, an increase of 16% y-on-y, according to JLL.
In the fourth quarter alone, there were €34bn of deals, surpassing the previous record of €26.5bn in the fourth quarter of 2016. In the last three months of the year, 73 transactions in the three-digit-million or billion-euro range were completed, with 187 deals above the €100m mark, according to JLL. The sale of Canadian REIT Dream Global’s property assets to Blackstone for $4.7bn topped the transaction list at the end of the year, including around €3.2bn of German real estate. Overall, single-asset transactions accounted for 62% of the total volume (€56.2bn). Portfolio sales continued to gain ground, accouting for €35bn of deals, an increase of 24% y-on-y, according to JLL.
‘It had not been expected that this quantity of transactions would be completed at the eleventh hour, and the ensuing result significantly exceeded our forecast,’ said Timo Tschammler, CEO of JLL Germany. ‘At first glance, the sheer number of transactions also seems to disprove the thesis that there is an insufficient supply of property and that the so-called ‘wall of money’ cannot be satisfied,’ he added. ‘The argument that there is a glaring supply shortage still basically applies because the 21 large-scale transactions, each with a volume of over €500m, accounted for almost €23bn or around a quarter of the total volume,’ he said.
The real estate market also looks set to profit from German government bonds, given that around €800bn of bonds are due to expire over the next five years and will need to be reinvested. The previous interest rate on government bonds was around 3% on average, which is significantly higher than the current rate of return.
‘Some of this capital should be invested in real estate, meaning that demand in the German investment market will remain high in the next few years,’ said Helge Scheunemann, head of research at JLL Germany. According to the latest PwC/ULI survey, more than half of European investors surveyed want to further expand their real estate holdings in 2020, and German real estate is expected to play a central role. ‘Because of its federal structure and continuing economic and political stability, Germany is again well placed to be at the top of shopping lists for international and local investors this year,’ Tschammler added.
Offices account for lion’s share
Predictably, offices accounted for 40% of all deals, followed by resi, with 24% of the total. The retail sector continued to struggle, accounting for just 12% of deals: ‘There was a particular absence of large-scale shopping centre transactions. In contrast specialist retail products, especially large food retailers, are still in high demand among investors. In principle, however, retail property continues to be viewed critically and the structural change here is in full swing,’ Scheunemann said.
Logistics made up just 7% of the total, despite the surge in e-commerce. However, the low number can largely be attributed to the lack of new product. Mixed-use assets made up another 10%. Hotels rallied in the fourth quarter, taking the total to €4.86bn for the full year, only just short of the all-time high registered in 2016 of €4.89bn. The volume was 26% above the previous year and around 20% above the five-year average and as much as 93% higher than the average for the past ten years, according to JLL.
‘At the end of September, we did not foresee a year-end rally like this,’ said Heidi Schmidtke, managing director of the JLL Hotels & Hospitality Group in Germany. ‘Our original forecast of €3.5bn to €4bn was significantly exceeded, not least because of increased off-market activity relating to large single assets and portfolios. In total, five portfolio transactions in the three-digit-million range were completed in the last three months, eclipsing the level of activity in the portfolio segment over the past two years.’
