German retail property investment market sets new record, driven by big-ticket transactions of fore

  • German retail real estate transactions more than double in volume during H1, adding up to 9.8 billion euros

  • Foreign players account for more than two thirds of the investment total

  • Clear increase in package sales to nearly 65 percent of the entire investment volume

  • Prime retail properties the strongest asset class, followed by shopping centres

  • Noticeable rise in investments in regional centres and second-tierlocations

  • Prime yields in the retail segment keep softening – yield drop most pronounced for inner-city commercial buildings and shopping centres

  • Transaction volume of no less than 15 billion euros expected by the end of the year


During the first semester of 2015, investments in German retail real estate soared to a total of approximately 9.8 billion euros. Year on year, the transaction volume more than doubled as it grew by nearly five billion euros. This is the upshot of a recent analysis conducted by the CBRE real estate consultancy firm. Large-scale property acquisitions within the framework of corporate transactions definitively contributed to this strong mid-year result.

Cities Outside Germany's “ Top 5” Claim very High Market Share
By mid-year, the transaction volume in the investment centres Berlin, Düsseldorf, Frankfurt, Hamburg and Munich had grown by nearly 670 million euros or about 57 percent year on year, and totalled well over 1.8 billion euros. At the same time, the investment volume also jumped up outside Germany's top locations.

Jan Dirk Poppinga, Head of Retail Investment
Due to its federal structure, Germany has quite a variety of fascinating investment locations well away from the big centres, and these are increasingly moving into focus both for investors and for retailers.
Jan Dirk Poppinga, Head of Retail Investment

All things considered, nearly eight billion euros were allocated for retail real estate in these regional destinations, equal to 81 percent of the total volume. The portfolio share increased noticeably to almost 65 percent during the first six months of 2015 – up from around 36 percent by the end of the prior-year period. Especially foreign market players acquired German retail assets on a major scale through package deals.

Stats Dominated by Galeria Kaufhof Deal
Trading of inner-city commercial buildings in prime locations accelerated in H1 2015 to the point where it dominated the investment market action. Around 3.7 billion euros were invested in this asset class during the first six months of the year, which implies a share of nearly 38 percent of the total volume. The remarkable one-year surge in investments by approximately 2.6 billion euros was essentially driven by the takeover of the Galeria Kaufhof department store chain by Canada-based Hudson's Bay Company. “The company has made a place for itself on the German retail market through the strategic takeover of the Kaufhof department stores and the associated real estate assets,” said Jan Linsin, Head of Research at CBRE. Within the framework of the takeover, 43 German department store buildings of the retail lines Galeria Kaufhof and Sportarena were transferred to a joint venture between Hudson's Bay Company and the US company Simon Property Group. Also worth mentioning is Corestate's acquisition of a package of 35 retail properties in prime high-street locations of mid-size cities in Germany. “This transaction mirrors the trend among investors – due not least to the scant availability of suitable products in the investment centres – to show increasing commitments in second-tier cities with high risk-adjusted returns,” explained Poppinga. “Value-add products offer appreciation potential through active asset management, causing both the supply and the demand for products of this type to increase on the market.”

Shopping Centres – Consolidation Under Way in the Industry
In addition, the volume of shopping centre investments has also jumped up considerably, approaching 2.9 billion euros by the end of H1 2015. In fact, shopping centres accounted for 29 percent of the entire investment volume, and became the second strongest asset class. In this segment, too, a company takeover contributed substantially to the high overall result, as the French company Klépierre took over its competitor Corio, including the latter's five shopping centres in Germany, for nearly one billion euros. Another big-ticket transaction was the acquisition of a 46.1-percent interest in the German shopping centre developer and operator mfi from Unibail-Rodamco by the Canada Pension Plan Investment Board (CPPIB). “The various takeovers and mergers among shopping centre operators in the recent past point to an ongoing consolidation process in the industry,” said Poppinga. Against the background of a dwindled number of suitable locations for new centre projects and the sometimes long-winded development phases, taking over a competitor represents an alternative expansion option for centre operators who seek to gain market shares, especially in the lucrative German retail market.

Retail Parks Maintain Stable Share of 29 Percent in the Investment Total
Retail warehouses and retail parks, which had dominated the prior-year period, accounted for a market share of 29 percent by mid-year 2015 with an investment volume of 2.8 billion euros. The properties are predominantly located outside the top cities, and were mostly traded in the form of package sales. Buying portfolios is particularly popular among institutional investors because it offers a great chance to spread the risk across several locations. Large package sales to date included the three portfolios Superstella, Tannenberg and Turret, consisting of 107 supermarkets, discount stores and retail parks that Patrizia Immobilien bought for 286 million euros from the Fortress subsidiary Eurocastle, the Multiplex portfolio of 61 discount stores and supermarkets acquired by Marathon Asset Management from Brookfield Asset Management, and the 56 neighbourhood centres and hypermarkets purchased by Redefine International / Redefine Properties.

Listed Property Companies and REITs the Strongest Buyer Group
Listed property companies and REITs emerged from the first semester of 2015 as the strongest buyer group, boosted not least by the Kaufhof takeover and the merger of shopping centre operators Corio and Klépierre. With combined investments of just under 4.6 billion euros, they accounted for nearly 47 percent of the total volume for German retail real estate as well as for the bulk of investments in the top locations. Runner-up was the investor group of asset and fund managers, which spent 2.8 billion euros on retail properties during the first semester, and thereby contributed 29 percent to the investment total. Following at a considerable distance, and ranking third by volume on the retail property investment market, open-ended real estate funds and special funds collectively invested approximately one billion euros.

International Investors Setting the Pace on the Market
With investments of more than seven billion euros, international investors substantially expanded their share of the overall volume from 47 percent to 72 percent year on year. As a result of the big-ticket company takeovers mentioned, Canadian and French investors emerged as particularly active market players. Next in line were British and Swiss investors. “In addition to classic real estate transactions, we noted that foreign investors are increasingly gravitating toward company takeovers and equity investments in their efforts to lay their hands on the retail real estate they covet, and to achieve their agenda in terms of their target quotas,” said Linsin.

Prime Yield Keep Softening
The persistently high demand for German retail real estate has caused an inward yield shift. Compared to the first semester of 2014, prime yields have softened across the board and are now down to 4.3 percent (-20 basis points quarter on quarter and below the prior year quarter) for prime shopping centres. The average net initial yield for inner-city commercial buildings in Germany's top 5 cities also took a serious dip and, at 3.86 percent on average, undercuts the prior-year figure by a total of 26 basis points. The workaround strategy of going for sound assets in non-core locations or for alternative investment assets like retail warehouses and retail parks in prospering regional centres has extended the yield compression even to these locations or segments. For instance, the prime yield for shopping centres in secondary locations continued to erode and was down to 5.0 percent by mid-year 2015. Yields for modern retail parks declined to 5.4 percent nationwide.

Transaction Volume Expected to Climb to 15 Billion Euros or More by Year-End
With the high transaction volume, Germany has once again underlined its role as one of the most important investment destinations for real estate investors worldwide. “Being one of the largest retail markets in Europe with attractive macro-economic conditions and having a stable real estate market, Germany presents itself as a rewarding destination not just for domestic but even and especially for international investors,” said Poppinga. This makes it rather safe to assume that the high level of investor commitment on retail property markets will continue in the second half of the year. “Although supply is drying up across segments, we expect to see a transaction volume of no less than 15 billion euros for the year as a whole,” predicted Poppinga.

Jan Dirk Poppinga
Head of Investment Germany
+49 30 72 61 54 155

Dr. Jan Linsin
Head of Research Germany
+49 69 17 00 77 663



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