Investment market for retail property picks up notable momentum
Investment volume of German retail property climbs to €8.4 billion
Brisk trading in retail warehouse and food markets as well as retail parks
Ongoing decline in prime yields for inner-city commercial buildings
The investment volume in the German retail property market picked up notable momentum in the third quarter, rising to €8.4 billion overall. In the third quarter alone, retail property worth €3.9 billion changed hands, compared with €2.9 billion in the second quarter and €1.6 billion in the first quarter of 2016. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.
There was, however, no repeat of the very good year-earlier result of €14.0 billion (down 40%). The high investment volume in 2015 was also determined by various corporate transactions in the billion range – no comparable transactions materialised in the first three quarters of 2016.
These deals included the takeover of the Galerie-Kaufhof department stores and Sportarena by a joint venture of the Hudson’s Bay Company and the Simon Property Group, as well as the takeover of shopping centre operator Corio and its five German shopping centres by French competitor Klépierre.
Focus remains on prime locations in the top centres
Around €1.8 billion was invested in the six top locations, which corresponds to share of 22%. Commercial buildings in prime locations in particular were acquired here, accounting for €734 million and representing a share of 40% in the overall investment volume allocated in the investment centres.
The prime yield for inner-city commercial buildings also continued to decline for this reason, averaging 3.51% across the six top locations, and had therefore fallen 12 basis points quarter-on-quarter. By contrast, the yields of other retail properties remained unchanged from the level of the previous quarter, despite the high pressure.
Retail warehouses and retail parks attract investors
Retail warehouses and retail parks were generally by far the strongest asset class in the German investment market for retail property: A good €3.6 billion was attributable to this type of property, equivalent to 43% of the entire investment volume.
Cutting-edge retail parks, as well as retail warehouse and food markets can continue to reinforce their position as an asset class in huge demand. Their popularity in the eyes of investors is due, on the one hand, to better availability compared with other property types. On the other, they can generate comparatively higher yields when measured against expensive commercial buildings in top locations in the major cities and given the scarce supply of Core shopping centres in an environment where the pressure to invest is on.
Shopping centres accounted for just under €2.0 billion, equivalent to 24% of the total investment volume. In the first nine months of 2016, almost €1.8 billion was invested in inner-city commercial buildings in top locations across Germany, representing a share of 21%.
German buyers and sellers dominate
German investors remain strongly committed to the domestic market, with investments of €5.6 billion corresponding to a share of 67%. In the very strong year-earlier period, domestic investors also concluded transactions worth €5.6 billion. These figures impressively reflect the high and sustained interest, particularly of domestic investors, in German retail property. On the seller side as well, domestic investors dominated market activity with a share of 57%, which is €4.8 billion.
Of the group of international investors, investors from the United Kingdom proved to be particularly active, contributing around €873 million, which makes up 10% of the investment volume. In second place came investors from the United States with €572 million (7%), followed by Swiss investors with €312 million (4%). Furthermore, also on the sell-side, investors from the United Kingdom and the US, dominated selling in the market, disposing of properties worth €1.9 billion (22%) and €605 million (7%) respectively.
Investment volume characterised by single deals
Single deals dominated investment activity. With just under €6.4 billion, 76% of the transaction volume was invested in individual properties. Portfolio sales accounted for 24% of the current investment volume of around €2.0 billion.
The strongest buyer groups were open-ended real estate and special funds which acquired property worth €2.9 billion in total (35%), followed by asset and fund managers with investments of €1.9 billion (22%).
On the seller side, developers proved to be particularly active, with retail property worth €2.5 billion (29%) changing hands, followed by asset and fund managers who sold €2.4 billion in real estate (28%).
Forecast: strong fourth quarter
“We continue to see great investor interest displayed in the German market for retail property, both by German and international investors,” Linsin says. “It is evident, however, that thanks to the existing investment and asset management platforms, domestic investors are increasingly making use of their home advantage over foreign competitors and securing the desirable retail properties in the German market,” Linsin adds.
“We assume that the development so far on the German retail investment market will continue in the last months of 2016, with increased momentum towards the end of the year. A result in the mid-double-digit range can therefore be expected for the full year,” Poppinga states.
Investment volume in retail property (in € billion)
Source: CBRE Research, Q3 2016
Net prime yield trend* of retail property
*: Net initial yield
**: Average net initial yield in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich
Source: CBRE Research, Q3 2016
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