• Transaction volume of €14.9 billion in the first three quarters

• Portfolio share drops to 14%

• Institutional and local players particularly active

• Transaction volume significantly above €20 billion anticipated

A total of €14.9 billion was invested in German office real estate in the first nine months of this year. This asset class thus has a share of 45.5% in the overall commercial investment volume and remains the strongest asset class in the commercial segment. In the third quarter alone, a good €7.2 billion was invested – almost double the result of the second quarter of the year. In comparison to the very strong year-earlier result, the investment volume declined by 10% or just under €1.7 billion in the first nine months. This is the conclusion of a current analysis prepared by the commercial real estate services company CBRE.

Strong office take-up spurs investment
The acceleration in office space take-up in particular and the rising level of rents in the top locations of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich continues to spur investment in office buildings.

The five top locations accounted for a good €10.2 billion, which is almost 69% of the nationwide volume.

In addition, there is still very limited availability of highly sought after Core properties in the major centres. Consequently, the investment volume in the Top 5 markets dropped by around 17% in comparison with the first three quarters of 2015, while in other locations 10% more was invested compared with the prior-year period.

Twenty-eight deals over €100 million
The nationwide portfolio share, which corresponded to just 14%, was even lower than in the previous year (19%). Selective investments were made in single assets in the prime locations in particular, including the Commerzbank Tower which, as the largest single deal seen so far this year, was sold to Asian institutional investors. All in all, 28 transactions (single assets and portfolios) were registered with a volume of more than €100 million each (for comparison: 40 transactions in this dimension were reported in Q1–Q3 2015). Ten of these transactions were concluded by foreign investors who are on the lookout for large-scale investment opportunities in particular in order to build up their portfolios in the German market.

Particularly brisk investment activity by institutional and domestic players
Similar to the overall commercial market, institutional investors proved to be particularly active as they are still facing huge pressure to invest and need to manage their yield requirements and cash flows.

Foreign investors adopted a more reticent stance than in the year-earlier period, investing around 35% of the overall volume. The interest of international investors nonetheless continues to run at a high level. They are confronted, however, with a very strong group of domestic investors with whom they engage in bidding battles for the scarce investment opportunities.

Yields still under pressure
Net initial yields for office property dropped due to strong and steady demand in almost all top locations: an average prime yield of currently 3.73% is commanded in the Top 5 office markets. Yields continued to decline in investment centre secondary locations as well. In a quarter-on-quarter comparison, this trend was particularly pronounced in Munich’s peripheral areas (-0.25%-points) and Berlin’s city fringes (-0.20%-points).

Forecast: take-up in excess of €20 billion
“For the full year 2016, we anticipate a transaction volume significantly exceeding €20 billion due to the sustained strong demand and the strong performance of the office letting markets ,” Klein says.

Prime rent for office property by sub-market cluster

Source: CBRE Research, Q3 2016.

Investment volumes, net initial yields & yields of 10-Y Bunds

Source: CBRE Research, Q3 2016.

Contacts:

Fabian Klein
CBRE GmbH
Head of Investment Germany
+49 (0)69 17 00 77 55
fabian.klein@cbre.com

Dr. Jan Linsin
CBRE GmbH
Head of Research Germany
+49 (0)69 17 00 77 663
jan.linsin@cbre.com