• Investment volume almost €14.9 billion in the third quarter, up 58% quarter-on-quarter

• Germany as a safe haven in even stronger demand

• Ongoing decline in prime yields for office and retail property

In the first nine months of 2016, aggregated investments in commercial properties in Germany stood at €32.7 billion, down some 15% compared with the year-earlier period which was determined by real estate deals in the billion range due to corporate takeovers. A very strong third quarter with an investment volume of almost €14.9 billion nonetheless sends a clear signal of a very dynamic market. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.

Investment transaction volumes in Germany (commercial real estate; quarterly figures)

Source: CBRE Research, Q3 2016.

Property availability restraining investment in the Top 5 locations
At €14.6 billion, some 45% of the transaction volume was accounted for by the Top 5 locations, which represents a decline of 21% against the year-earlier figure. Only Hamburg and Munich saw greater activity by international investors. Berlin continued to report the highest level of investment activity, followed by Frankfurt and Munich, even though the transaction volume in all three locations was considerably lower in comparison with the previous year period due to the limited availability of property. Düsseldorf and Hamburg sustained more moderate declines.

Top 5 investment markets (commercial real estate)

Source: CBRE Research, Q3 2016.

Office real estate remains the strongest asset class
At almost 46%, the lion’s share of the investment volume was attributable to office real estate, also due to several large-scale deals (single transactions and portfolios) of €100 million and more each, including the Commerzbank Tower which, as the largest single transaction so far this year, was sold to Asian institutional investors. Next came retail assets (26%) and hotels (8.7%), with warehouse/logistics real estate (8.4%) not far behind. Hotel investments above all increasingly emphasize the tendency of property investors to turn to alternative real estate investments in search for higher yields.

International investors are on the lookout for large-scale investment opportunities
Even if, in a direct year-on-year comparison, international investors are proving more reticent, they nonetheless contributed €12.5 billion to the overall volume, which is some 38%. By comparison, they accounted for more than half of the transaction volume over the same period in 2015. Generally speaking, international investors in particular are on the lookout for large-scale investment opportunities in Germany. Of the more than 60 major transactions registered, foreign investors accounted for just under half, concluding the three largest transactions to date.

“With the bidding procedures we have accompanied so far, we are seeing a growing interest on the part of international investors – along with institutional investors from North America, also increasingly from France and Asia, here specifically from South Korea, Singapore and Malaysia, as well as China and Japan –, which coincides with a very strong group of domestic investors. The parties then engage each other in bidding battles for the scarce investment opportunities,” Klein comments.

Strong demand burdens the office real estate yields
Net initial yields for office property declined due to consistently strong demand in almost all top locations: The average prime yield in the Top 5 office markets is currently running at 3.73%. The prime yield for first-rate high street retail buildings also continued to drop and now averages 3.49% in the Top 5.

Forecast: investment activity continues to accelerate, with a potential for a transaction volume of up to €50 billion for the full year
“We are sticking to our forecast for the full year 2016: The flight to Germany as a safe haven is spurring investment momentum – a transaction volume of up to €50 billion is possible this year“, Klein says. “An intact investment market and robust economic data are attracting a greater inflow of foreign capital, which will put further pressure on yields as the year progresses. Given the ultra-low interest rates and no changes to the course the ECB is steering with its monetary policy, we expect demand for German commercial real estate to remain very high in 2017 as well”, Linsin adds.

Yield spread office real estate vs 10Y Bunds

Source: CBRE Research, Q3 2016.

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

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