German commercial real estate reported around €12.1 bn of transactions in the first quarter of 2018, slightly down on the previous year's record result but still 70% above the ten-year average, according to broker CBRE.
'Holding true in 2018 as well: Investors love German commercial real estate. Nevertheless, properties and portfolios are subjected to a thorough analysis as to the sustainability of location, technical standards and concept before investment decisions are made,' said Fabian Klein, head of Investment at CBRE Germany.
Germany still highly desirable for international investors
International investors invested a good €5.4 bn (45%) of the overall transaction volume, which is virtually the same amount as in the first quarter of 2017. In regional and B locations, they raised their share to just under 53% (Q1 2017: 48%).
At around one quarter of the investment volume, investors in European countries outside Germany, above all in the UK, committed particularly strongly to Germany’s commercial investment market. North American investors bought German commercial property worth almost €1.3 bn in total, and therefore accounted for 10% of the transaction volume, followed by Asian investors with a good €900 mln, which is just under 8%.
'International investors are increasingly recognizing attractive potential outside the Top 7 locations. In contrast to European investors, North American and Asian investors therefore invested a large part of their volume outside the top locations – increasingly also in the context of nationwide portfolios,' commented Klein.
While the nationwide transaction volume settled around the previous year’s level, the investment volume allocated to the Top 7 locations increased by 44% on the prior year to almost €7.9 bn.
Large-volume deals, especially in the office segment, brought the share of this asset class in the overall volume of the Top 7 locations to 75%, which is also significantly higher than the figure for the whole of Germany. Of the 10 largest transactions, eight alone were single deals involving office buildings in Frankfurt, Hamburg and Munich, which resulted in very sharp increases being registered in the transaction volume overall in these locations.
Despite the sustained high demand and severely limited availability, net initial yields remained stable in most markets and asset classes compared with the fourth quarter of 2017. Net initial yield for first rate office properties in premium locations in the Top 7 investment markets came in at 3.26%, albeit marginally lower than the previous year’s figure (3.28%), as prime yields in all markets – with the exception of Hamburg which registered a slight decline of 10 basis points – remained stable compared with year-end 2017.
Investors continue to increasingly turn their attention to the city fringe and peripheral areas of the top locations, which is the reason for yields being under pressure here as well.
The yield for high street retail properties in central locations in the top markets averaged 3.16%, reflecting the level of the final quarter of 2017 as well. By contrast, further yield declines were reported in the large-scale retail segment, first rate shopping centers in top locations and retail parks for instance, that came under pressure from strong demand.
In the formerly alternative asset classes of hotels and logistics, net initial yields for premium properties remained stable at 4.00% and 4.40% respectively.