• Transaction volume of 14 billion euros far more than doubled year on year

• International investors accounted for more than half of the investment total

• At nearly 59 percent, portfolio transactions represented the majority of sales

• Trade with inner-city commercial buildings dominated Germany's retail investment market

• Prime yields remained largely stable quarter on quarter, but generally continued to harden

• Record transaction volume of up to 20 billion euros expected by the end of the year
   

Nearly 14 billion euros were spent on Germany's retail property investment market during the first three quarters of 2015, according to analyses conducted by the real estate consultancy firm CBRE. This means that the transaction total has more than doubled, topping the result of the prior-year period by nearly 7.8 billion euros or 124 percent.

Retail property transaction volumes (in billion euros)

Source: CBRE Research

Share of Foreign Capital Grows by 5.3 Billion Euros
Investors remain as keenly interested in German retail property as ever. Driving force behind the massive investment volume were specifically foreign investors, who continue to commit themselves in strength on the German market for retail property, and who accounted for approximately 8.2 billion euros or about 59 percent of the entire transaction volume. “Compared to the prior-year period, the foreign capital share increased by 5.3 billion euros, impressively underscoring the significance of Germany as a sought investment destination among market players worldwide,” said Jan Linsin, Head of Research at CBRE Germany. Particularly active were Canadian investors, who entered into large-scale commitments during the first semester, and who have so far contributed approximately 3.1 billion euros or 22 percent of the investment total. French investors came in second with 1.6 billion euros (11 percent), followed by investors from the United States with 1.3 billion euros (9 percent).

Trade with High-Street Commercial Buildings Continues to Dominate
A drilldown by use type shows that business on the retail investment market continued to be dominated by the trade with high-street commercial buildings during the first nine months of 2015. With a transaction volume of more than 4.7 billion euros, this asset class accounted for 34 percent of the total volume in the first three quarter of 2015. By the end of the prior-year period, high-street assets were still in third place with a share of 21 percent, after retail warehouses / retail parks, and after shopping centres. “The high figure was definitively brought about by three large-scale portfolio transactions, including the takeover of the department stores of Galeria Kaufhof and Sportarena by a joint venture of Hudson's Bay Company and Simon Property Group,” said Linsin. The majority of the high-street commercial properties that changed hands were located outside Germany's Top 5 cities – these being Berlin, Düsseldorf, Frankfurt, Hamburg and Munich – where suitable assets are now in short supply. That said, the sizeable sum of approximately 3.6 billion euros was invested in prime retail property outside the investment centres.

Retail warehouses, retail parks, supermarkets and food/non-food discounters came in second with 4.6 billion euros or well over 33 percent of the investment total at the end of the first nine months of the year. Accordingly, the volume allocated to this asset class topped the already impressive result of the prior-year period by another 1.8 billion euros, implying a year-on-year increase by 63 percent. The properties were mainly traded in the form of portfolio transactions, including the Sokrates portfolio of ten “real,-” hypermarkets in Q3.

A total of 4.2 billion euros was invested in shopping centres during the first nine months, which translates into a share of around 30 percent of the entire transaction volume. Big-ticket transactions in Q3 that contributed to this outstanding overall result involved the Sevens shopping mall in Düsseldorf, which CBRE Global Investors acquired from Signa Holding, and the sale of Düsseldorf Arcaden by Ivanhoé Cambridge, among other deals. Both of these transactions were facilitated by CBRE.

Listed Property Companies and REITs the most Active Buyer Group
By far the most active group of buyers during the first three quarters were listed property companies and REITs who collectively invested approximately 4.6 billion euros or 33 percent of the total. A year ago, this group had committed just over one billion euros and claimed a noticeably lower share of barely 17 percent. With an investment volume of 3.6 billion euros or nearly 26 percent of the total, asset and fund managers made up the second most active buyer group of the past nine months, closely trailed by the group of open-ended and special funds, which collectively contributed 3.2 billion euros or 23 percent to the nine-month total.

The most active group on the seller side were corporates, as they divested themselves of approximately 3.4 billion euros worth of retail property investments, and thus accounted for nearly 24 percent of the total volume. Mainly responsible for the group's robust performance over the past nine months were retail companies that sold off entire real estate packages. Among them were Edeka and Metro, both of whom put food market portfolios up for sale. Asset managers and fund managers were also very busy on the seller side. With properties in a combined volume of 3.1 billion euros sold, they accounted for a market share of 22 percent. Listed property companies and REITs parted with approximately 2.3 billion euros in retail property and claimed 16 percent of the total volume.

Portfolio sales continue to dominate the market action in retail property trading in Germany. During the first three quarters of 2015, the market share of portfolio transactions ascended to nearly 59 percent, which implies package deal investments worth approximately 8.3 billion euros. This is up from a block sales share of barely 37 percent by the end of the prior year period. Especially high-street commercial properties, retail warehouses and retail parks were traded in blocks.

Yields Remain under Pressure
As a result of the unchecked high demand for German retail real estate, yields keep shifting inward. While prime yields in the retail segment, unlike just about every other asset class, remained stable quarter on quarter, net initial yields hardened considerably year on year. Specifically, average prime yield for commercial properties in the prime high-street pitches of Germany's top cities dropped to 3.87 percent (down -26 basis over prior-year quarter). Yields for shopping centres in the Top 7 investment centres (including also Cologne and Stuttgart) are at 4.30 percent, which implies an inward shift by 20 basis points since Q3 2014, whereas yields of 5.00 percent are currently realised for comparable assets in secondary cities (-30 basis points). A much steeper one-year drop, comparatively speaking, was registered for retail warehouses and retail parks, which declined by around 65 basis points to 6.25 percent and by 50 basis points to 5.40 percent, respectively.

Development of retail property prime yields*

* Net initial yield

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

Source: CBRE Research

“Despite the visibly contracting supply, we expect to see the demand for German retail real estate on the investor side to remain just as high through the end of the year, not least because fundamentals like the continued job growth, the associated rise in household incomes and the very positive consumer climate encourage investments in the German retail sector,” said Poppinga. “For 2015 as a whole, we predict an investment volume of up to 20 billion euros.”

Contact:
Jan Dirk Poppinga
CBRE GmbH
Head of Agency Germany
+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