CB Richard Ellis
Jan Dirk Poppinga - CBRE
‘The decline in the retail transaction volume in the German market calls for a more discerning look,’ said Jan Dirk Poppinga, co-head of retail investment at CBRE Germany.
Logistics and industrial properties are expected to retain their charm for both domestic and foreign investors, with the latter group investing around €1.65bn more on balance in 2018, according to JLL.
The logistics and industrial asset class recorded its second-best year ever last year with a transaction volume of almost €7.5bn. Mid-cap transactions grew significantly, and proved to be an extremely dynamic segment with 140 deals recorded, totaling €810m.
Despite the markedly higher overall number of transactions (230, +13% compared to the previous year), the investment volume was below the record level of 2017 (-14%). This is because in 2017, the five largest deals amounted to €4.57bn, including the Logicor portfolio (€1.9bn), accounting for 53% overall. In 2018, the top five deals totalled €2.46bn, corresponding to a third of the overall logistics volume, according to JLL.
The largest transactions included the sale of the Laetitia portfolio by Aurelis Real Estate to Swiss Life, comprising 32 commercial properties in locations throughout Germany; the sale of Optimus Prime Portfolio by Beos to Heleba Invest; and the sale of a logistics portfolio by Alpha Industrial Holding to Frasers Property Limited - the majority of the €500m portfolio was invested in Germany.
‘This year again looks set to be an exciting period in the German investment market for logistics and industrial property,’ said Willi Weis, head of industrial investment at JLL Germany. ‘Prime yields will fall further in the ‘Big 7’ cities.’
In the 12 months to end-2018, yields fell 40 bps to 4.1%, according to Weis. The gap between logistics and office yields (3.11%) is now only one percentage point, compared to two percentage points in 2011 (4.9% compared to 6.9%). In 2019, the prime yield could drop to 3.75%, causing a further narrowing of the yield gap between the two asset classes, Weis added.
‘Portfolio transactions above €500m will also reappear in 2019,’ he said. ‘At least two deals in this range are in the preparatory stage. On the other hand, small and medium-sized companies from the manufacturing sector will ramp up their activities significantly in 2019. It was already the case last year that such companies were increasingly thinking selling their industrial property under a sale and leaseback arrangement. We will undoubtedly see more transactions in this area. Overall, we believe that a transaction volume at the level of the previous year is possible for 2019.’
Retail market hits the skids
Predictably, the retail market did not fare so well last year. While €10.5bn was channelled into retail deals in Germany in 2018, this marked a 25% drop y-on-y.
‘The decline in the retail transaction volume in the German market calls for a more discerning look,’ said Jan Dirk Poppinga, co-head of retail investment at CBRE Germany. ‘While inner-city retail properties in top locations increased their share in the overall volume to 39% (€4.1b), with a major impact emanating from the merger between Karstadt and Kaufhof, the proportion invested in shopping centers, in particular, declined significantly.’
The disruptive change resulting from e-commerce is causing investors to adopt a reticent approach to shopping centres in B and C locations, according to Poppinga. Last year, €1.3bn was invested in shopping centres, just 13% of the overall volume. In 2017, this figure stood at €2.7bn (20%), according to CBRE. Retail warehouses and retail parks remain the dominant asset class, accounting for €4.4b of deals or 42% of the market, according to Poppinga: ‘Strong investor interest in retail warehouse properties is evident from the yields that slipped further toward the end of the year, particularly for retail parks,’ he added.At €2.4bn, the final quarter was especially disappointing, according to Jan Schönherr, co-head of retail investment at CBRE Germany: ‘All in all, we anticipate the demand for retail property in 2019 at the level of the previous years, with investors continuing to focus on properties in the food market segment,’ he predicted. International investors upped their game to account for an additional 5% of deals last year or 42% of total retail transactions, according to CBRE.In the ‘Big 7’ locations, this rose to 53%. Berlin alone registered a transaction volume of more than€1b, according to CBRE. (ssk)
