Renewed momentum on the German retail investment market
- Transaction volume grows to nine billion euros
- Trading in retail warehouses and retail parks predominates – share rises to 49 percent
- Domestic investors continue to invest heavily in their home market
Around nine billion euros were invested in German retail property in the first nine months of 2017, reflecting an increase of 10 percent in a year-on-year comparison. German retail property remains very much the focus of investors, despite the now short supply of suitable products, and maintained its second place behind office property with a share of 23 percent of all investment in Germany’s commercial real estate segment. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.
The German retail investment market continues its stellar performance and has once again delivered one of the best results since records began.
The retail warehouse and retail park segment is particularly high on the list of investor favourites and consistently accounts for a large share in the overall retail investment volume.
The reasons for the keenness of investors on this type of retail property are very diverse and range from better availability and a more attractive yield profile through to higher return ratios and on to the attractive lot size of these properties compared with core properties in the segment of shopping center and high street properties.
Retail warehouses and retail parks by far the strongest asset class
Consequently, the high investment volume in the retail asset class was supported in particular by transactions in the retail warehouses and food markets segment. At €4.4 billion, almost half (49 percent) of the entire retail transaction volume was invested in this asset class, reflecting an increase of €835 million in the share (up some 23 percent) compared with the previous year’s period. A major part was invested in the context of portfolio transactions, including eleven large-volume portfolios upwards of €100 million, examples being the portfolio acquired from Patrizia for €400 million, which comprised 85 neighborhood centers and discounters, and the Trade Portfolio consisting of supermarkets and discounters which was acquired for a fund belonging to Bayerische Versorgungskammer. Especially institutional investors are increasingly turning towards retail properties specializing in food in order to secure a sustainably stable cash flow.
By contrast, the volume of €1.9 billion invested in shopping centers remained virtually unchanged compared with the year-earlier figure (two billion euros). A total of 22 percent of the transaction volume was accounted for by shopping centers, generally purchased by way of single transactions. Four shopping centers, including the Neukölln Arcaden in Berlin, the MIRA in Munich and the DuMont-Carré in Cologne, changed hands over the course of the year to date, with the majority of the centers traded located outside the investment centers. It is apparent in the shopping center segment that well established core shopping centers seldom come on the market, and investors are increasingly on the lookout for opportunities in real estate with upside potential.
In the first nine months of 2017, almost €1.6 billion were invested in inner-city commercial buildings in best locations across Germany, representing a share of 18 percent in the overall volume. High street properties in excess of one billion euros were traded in the context of single deals, including Hamburg’s Kaisergalerie which went to the Schweizer Anlagestiftung für Immobilienanlagen im Ausland for around €170 million.
Take-up outside the top locations still on the rise
Constrained by the pronounced short supply in the core segment in Germany’s top locations and fiercer pricing here, the share of the volume invested in retail properties in the Top 6 cities fell by another four percentage points to currently 15 percent in a year-on-year comparison. By contrast, the other locations, especially major provincials and B-locations with better yield profiles, lifted their share further to 85 percent. Seen in absolute terms, at €7.7 billion, around one billion euros more was invested outside the top locations than in the same period in 2016.
In the first nine months of the current year, single deals generally predominated in Germany’s investment market for retail property; the share of portfolios stood at 45 percent. Foreign investors in particular invested more than before in the market here in the context of partly high-volume individual transactions. Especially shopping centers and commercial buildings, including the Nova Eventis which is located between Leipzig and Halle (Saale), the Kaisergalerie in Hamburg and Berlin’s Neukölln Arcaden, were acquired. By comparison, there was more balance in the ratio between single deals and portfolio acquisitions by German investors.
Domestic players continued to dominate Germany’s retail investment market on the buyer side. With investments of €5.8 billion, 65 percent of all transactions was attributable to German investors. In the international arena, investors from the UK (13 percent), Switzerland (nine percent) and the United States (eight percent) were particularly active. By contrast, the share of domestic investors on the seller side was significantly lower at just under 44 percent. Other noteworthy shares were attributable in this context to the sales of British (21 percent), US and Swedish investors (both with around 10 percent).
In the first three quarters, asset and fund managers made up the strongest investor group by a long way with almost €2.7 billion (30 percent), along with open-ended real estate and special funds with €2.4 billion (27 percent) of all investments in retail properties. On the seller side as well, asset and fund managers were the most active, disposing of retail properties worth around €3.1 billion, which corresponds to almost 35 percent of the overall volume. With sales of €1.5 billion (just under 16 percent), developers took second position, followed by closed-ended real estate funds with €946 million and a share of 11 percent.
Prime yields still in decline
The unbroken popularity and strong demand for German retail property is putting pressure on initial yields. Prime yields for first rate commercial buildings in the best locations in Frankfurt, Hamburg, Cologne and Stuttgart shed up to 30 basis points compared with the previous quarter. In an average of the Top 6 locations, net initial yield decreased to 3.28 percent. While prime yields for shopping centers have remained stable for the time being at the level of the relevant previous quarter, yields for retail parks in hot demand fell by 25 basis points to 4.75 percent. The food market segment also saw prime yields decline. Supermarkets, for instance, stood at 5.40 percent in the third quarter, with hypermarkets dropping to 5.15 percent. The yields for contemporary DIY store properties let long term also slipped to 5.90 percent.
Forecast: dynamic year-end rally anticipated
While the transaction volume on the German retail investment market proved to be somewhat lower in the second quarter, momentum accelerated considerably again in the third quarter, as anticipated.
In the final quarter of the year we expect to see a dynamic year-end rally, which will mean that the target of €12 billion forecast for the full year should be clearly exceeded, provided that suitable property is sufficiently available.
Investment volume in retail property (in € billion)
Source: CBRE Research, Q3 2017
Trend in the prime yields* of retail property
*: Net initial yield
**: Average net initial yield in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich
Source: CBRE Research, Q3 2017
Jan Dirk Poppinga
Co-Head of Retail Investment
+49 (0)30 72 61 54 155
Co-Head of Retail Investment
+49 (0)30 72 61 54 153
Dr. Jan Linsin
Head of Research Germany
+49 (0)69 17 00 77 663
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 (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide.
CBRE offers a broad range of integrated services for the entire lifecycle of a property, from strategic and technical advice such as in sales and acquisitions or renting and letting, to managing and valuing properties to portfolio, transaction, project and facility management. CBRE offers individual advice for all asset classes from a single source.
Since 1973, CBRE Germany has been represented by its head office in Frankfurt am Main; there are further branch offices in Berlin, Düsseldorf, Essen, Hamburg, Cologne, Munich, Nuremberg and Stuttgart.