• Transaction volume of € 1.5 billion undercuts year-earlier period significantly due to limited availability of core properties

• German investors determine market activity in the first quarter – share climbs to 70%

• Single transactions dominate – portfolio share at 17%

• Trading in food markets, retail warehouses and retail parks characterises the investment market at the start of the year

• Net initial yields virtually stable quarter on quarter, but ongoing decline

According to analyses conducted by the commercial real estate services company CBRE, € 1.5 billion were invested in retail properties in the first three months of 2016, year-on-year decline of 59%.

In addition, the first quarter of 2015 was determined by a comparatively high number of large-scale portfolio transactions as well as the takeover of five German shopping centres belonging to Corio in the context of a merger with the French centre operator Klépierre, with an estimated property value of around one billion euros. In a year-on-year comparison, the portfolio share dropped by 37%-points to 17%.

Focus on regional centres and secondary markets
The limited supply is particularly evident in the Top 5 locations. As in the prior-year quarter, around one fifth (19%) of the overall retail transaction volume was channelled into retail properties in the investment centres of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich. Retail warehouses and retail parks as well as food markets topped the list of investors’ favourites with a share of 34%. The majority of the transaction volume, which accounted for € 1.2 billion, equivalent to 81%, was, however, allocated to regional centres and secondary markets with more favourable yield profiles.

Domestic investors particularly active
Domestic investors took a clear lead in the German investment market for retail property in the past quarter. They acquired retail property across Germany worth more than one billion euros, thus contributing 70% of the overall transaction volume. International players invested € 436 million, equivalent to 30%. Due to various large-scale transactions in 2015, international investors had accounted for more than half of all investments (56%) in the previous year. On the seller side as well, a much smaller share of the transaction volume (24%) was attributable to international investors, as opposed to their share in the year earlier period (77%).

Open-ended real estate and special funds invested approximately € 670 million in the first three months of 2016, which represents 45% of the overall transaction volume and makes them by far the strongest buyer group. Asset and fund managers took second place with € 383 million, equivalent to 26%, followed by private investors who purchased retail properties worth € 154 million (10%). On the seller side, developers proved to be particularly active: With investments of € 492 million throughout Germany, they accounted for one third (33%) of all sales in the retail property segment. Private investors sold properties worth € 297 million (20%), followed by open-ended real estate and special funds which disposed of retail property worth € 284 million (19%).

Retail warehouses, retail parks and food markets predominate
Investment in retail warehouses, retail parks, supermarkets and discounters dominated the first quarter of 2016, both in the top locations and elsewhere in Germany. At € 676 million, almost 46% of all investment into retail properties was transacted in this asset class, which therefore marginally outperformed the previous year’s level (45%). While in 2015, properties were mainly traded in the context of portfolio transactions, single transactions predominated the first three months of 2016. A volume of some € 388 million was invested into shopping centres, which corresponds to a share of 26% in the overall investment volume in retail property. In the first quarter of 2015, the share of shopping centres was significantly higher at 36%. The inner-city commercial buildings segment in prime locations took third place with a transaction volume totalling € 289 million, equivalent to 20%, although the majority of high-street units were located outside the Top 5 cities of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich.

Net initial yields virtually stable quarter-on-quarter
Net initial yields in the retail property segment remained virtually stable across all asset classes compared with the fourth quarter of 2015. First class shopping centres in prime locations still register net initial yields of 4.10%. Comparable products in prosperous regional centres remained at 4.80%. The net initial yield for retail warehouses, supermarkets and discounters continues at 6.25%, while retail warehouses registered a lower net initial yield of 5.25%. The net initial yield has only declined slightly to 3.83% for inner-city commercial buildings in prime locations. In Düsseldorf and Cologne, the net initial yield declined by 0.1%-points to 3.90% in each case compared with the Q4 2015, bringing the two North Rhine-Westphalian cities to the same level as Berlin, Frankfurt and Hamburg. By contrast, Munich remains lower at 3.50%.

“Demand for German retail properties by domestic and international investors remains unabated. The availability of Core and Core plus products, however, is becoming increasingly narrow, above all in the large investment centres. Consequently, we see growing interest, also on the part of security-oriented investors, in distressed and management-intensive properties. However, pricing in line with the market and the upstream decision making process prove to be somewhat protracted”, adds Poppinga. “We anticipate investment momentum to accelerate over the course of the year and expect a transaction volume in the double-digit billion range for the full year.”

Investment volume in retail property (in € billion)

Source: CBRE Research, Q1 2016.

Net prime yield trend of retail property

*: Average net initial yield in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich

Source: CBRE Research, Q1 2016.

Contact:
Jan Dirk Poppinga
CBRE GmbH
Head of Retail Investment
+49 30 72 61 54 155
jan.poppinga@cbre.com

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