Investment market for commercial properties gains momentum in the second quarter

  • Transaction volume at €9.4 billion in the second quarter, up 11 percent quarter-on-quarter

  • Half-yearly result 2016 totals €17.85 billion, down 26 percent compared with strong prior-year figure due to product scarcity in the Core segment

  • Growing risk aversion in response to the EU referendum in the UK ensures even more investment capital in Germany – flight to safety dominates

  • Demand for investment in German property at record high

  • Prime yields decline again across the board

  • Large numbers of high-volume single transactions and portfolio disposals pending in the second half of the year could ensure an investment volume of up to €50 billion

At €9.4 billion, a good 11 percent more was invested in the German investment market for commercial property in the second quarter than in the first three months of the current year, which brings the total transaction volume allocated to German commercial property to €17.85 billion overall in the first half of 2016. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.

Dr. Jan Linsin, Head of Research
Even greater momentum was again observed on the commercial property market in the second quarter. The demand for German assets continues to run at an uninterruptedly high level. This, combined with  the increased uncertainty and associated higher volatility in the financial markets in the wake of the UK’s EU referendum, will ensure that the German property market enjoys even greater popularity with domestic and international property investors as a safe investment haven.
Dr. Jan Linsin, Head of Research

Although the accumulated investment volume in the first six months of the current year contracted by a good quarter compared with the prior-year period, the current investment take-up is nonetheless three percent above the average half-year figure of the last five years, including last year’s record figure. This is attributable to the various predominantly property-related company takeovers and portfolio transactions in the billion range that have not yet materialized in the current year.

Fabian Klein, Head of Investment Germany
In the second half-year, we expect Germany’s investment market to pick up more momentum, irrespective of how events unfold in the wake of planned Brexit. This was already demonstrated by our survey on institutional investors at the start of the year when Germany topped the list of the most attractive and safest target markets for property investment.
Fabian Klein, Head of Investment Germany

“Discussions with national and international investors who are desperate to find investment opportunities in German properties corroborate this, as do the transactions accompanied by CBRE that are likely to transpire in the coming months. The shortage of property in the Core and Core plus segments alone currently restricts higher take-up, as investment funds, above all in the form of risk-averse equity capital, are more than abundant in times of an ultra-low interest rate phase that, in the light of recent events in the UK, is likely to prevail for a great deal longer”, Klein adds.

Berlin remains the hot spot of the five largest investment markets
Of the Top 5 investment locations, Berlin remains the hot spot for property investors. The city’s huge growth potential, particularly as regards the property market, attracted an investment volume of almost €2.1 billion. Hamburg and Munich follow in second and third place, each reporting investment volumes of just under €2 billion. Frankfurt was allocated a good €1.5 billion in the first six months, while Düsseldorf attracted €744 million, up two percent compared with the prior-year period.

Office and retail property remain the strongest asset classes – alternative segments see significant growth
The majority of the investment volume in the German commercial property investment market was accounted for by the asset classes of office properties (€7.6 billion; 42 percent) and retail property (€4.5 billion; 25 percent) in the first half of 2016 as well. The increase in office space take-up in particular and the rising level of rents in the top locations spur investment in office buildings. In addition, retail, supported by robust fundamental data, record figures in the labour market and rising disposable income, is viewed as an attractive investment, which is shown above all by the many retail warehouses and supermarkets that changed hands, as well as neighbourhood shopping centers and discounters, and the run on high street retail buildings in inner-city locations. High demand accompanied by a product shortage and commensurately low yields are nonetheless causing investors to turn increasingly to alternative investment segments, such as hotel real estate, logistics, health care and social welfare properties (nursing homes in particular). Here the volume invested rose substantially in comparison with the prior-year period, with hotel real estate reporting a year-on-year increase of 29 percent, equivalent to a share of 11 percent in the overall volume, which is a good €2 billion. Logistics properties also report an increase of 10 percent in the volume invested, equal to €1.8 billion, which represents growth of 39 percent compared with the first half of 2015. Against the backdrop of the comparatively robust economic situation in Germany, changed consumer patterns through expansion in online trading and good performance figures in the hotel sector thanks to the increase in overnight stays and demographic change, properties in these asset classes where the shortage of real estate is not so pronounced offer an attractive risk/return profile. 
Especially domestic investors with a strong equity base dominate Germany’s commercial property investment market. Compared with the year-earlier period, they invested almost €12.1 billion, which is 17 percent more, and therefore accounted for more than two thirds of the entire transaction volume in the first half of the year.

One third of the investment volume through international investors – more activity anticipated in the second half of the year
Overall, 26 large-scale transactions in excess of a lot size of €100 million were counted that, taken together, amount to more than €5.5 billion or around one third of the entire transaction volume in the first six months of the year. Of the large-scale transactions, more than €2.3 billion were attributable to international investors; all in all, foreign financiers accounted for a proportion of 32 percent, which is just under €5.8 billion, of the entire transaction volume. “This figure is set to rise significantly until the end of the year as foreign investors in particular show huge interest in deals in the triple-digit million range, with the aim of quickly increasing their Germany exposure as a stabilizing component of their global real estate portfolios,” Linsin says.

Institutional investors as the strongest net buyers
Whereas the first six months of 2015 were clearly dominated by listed property companies and REITs, which includes the portfolio transactions by Corio and Hudson’s Bay Company, open-ended real estate and special funds prove to be the strongest net buyers this year. Open-ended real estate funds and institutional investors – through indirect investments via special funds and increasingly direct investments by insurance companies, pension funds and supplementary pension schemes – are under great pressure to invest as, in phases of low or even negative interest rates for government bonds, they need to satisfy their yield requirements as well as manage their cash inflows adjusted for risk – especially funds that are open to the general public. Due to the lack of alternative investment options, the German property market in particular is a clear focus for this investor group, both domestic and foreign.
Although not the strongest net buyer group as in the first half of 2015, listed property companies and REITs were still among the major investors. This investor group is also required to achieve a balanced risk/return profile under the current framework conditions and to satisfy their shareholders’ expectations of return.

Net initial yields decline further in the face of huge excess demand
Net initial yields across all asset classes declined at mid-year 2016 in the face of high, steady and partly even stronger demand for Core products in conjunction with a still limited supply of products. Through the lack of alternative investment options – the benchmark yield of 10-year German bonds was in negative territory at the end of June – the run on property continues, particularly by institutional investors. Prime yields in the top locations have therefore dropped to their lowest level for decades.

In the office property segment, only Düsseldorf and Frankfurt registered prime yields above the four-percent mark (4.10 percent and 4.20 percent, respectively). In Munich, the quarter-on-quarter decline of five basis points was still relatively moderate; Bavaria’s capital city nonetheless continues to report the lowest net initial yield of 3.60 percent for first-rate office buildings. Net initial yields in Berlin and Hamburg dropped by 25 basis points to 3.75 percent in each case. The yields for good investment properties in secondary locations in the Top 5 and increasingly in peripheral areas are also under pressure and partly continued their downtrend as investors more frequently (have to) look for investment property also in these locations, while reviewing their risk propensity in order to fulfil their yield requirements. 

In the segment of high street retail property in top locations as well, the pressure to invest caused figures to fall further. The steepest decline in a quarter-on-quarter comparison was registered in Düsseldorf where the prime yield dropped 40 basis points to 3.50 percent. This figure is even lower in Munich – here the net initial yield for first-rate commercial buildings in top locations stands at only 3.25 percent. Berlin, Frankfurt and Hamburg all report a figure of 3.75 percent, down 15 basis points in each case in comparison with the first quarter.

In the logistics segment that constitutes an increasingly attractive alternative investment class, alongside the conventional segments of office and retail buildings, the decline of 20 basis points to currently 5.00 percent in net initial yield for state-of-the-art logistics properties in the Top 5 was also significant. The comparatively robust state of the German economy, in conjunction with the rising letting take-up of warehouse and logistics space and the notably faster rate of decline in yields in the conventional asset classes, is increasingly attracting also traditionally oriented institutional investors to logistics and production real estate. This enables an even higher yield to be commanded, that even for Core properties lies a good 100 to 140 basis points above the comparable yield for office or retail property.

Outlook: flight to Germany as a safe haven spurs investment momentum – transaction volume 2016 of up to €50 billion possible
“Given the most recent events with higher volatilities in the markets, real estate investors are even keener on security and long-term stable income streams from real assets such as property and are currently increasingly switching to risk-off mode in the selection of their potential allocation targets”, comments Klein. “Germany is not only Europe’s second largest investment market after the UK but also ranks as one of the most secure and stable safe havens in the world. Investors greatly appreciate these preconditions so that, despite limited property availability, 2016 may turn out to be a very good investment year for German commercial real estate. With institutional investors reshuffling their portfolios, we still consider an investment volume of up to €50 billion to be possible,” Linsin says. “The competition for prime and Core properties that are in increasingly short supply is set to accelerate. We therefore anticipate further declines in initial yields in this segment,” comments Klein in his outlook.


Fabian Klein
Head of Investment Germany
+49 (0)69 17 00 77 55

Dr. Jan Linsin
Head of Research Germany
+49 (0)69 17 00 77 663



About CBRE:
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at