Investment market Berlin 1Q2022: German capital remains a magnet for investment

Having closed the year 2021 with strong trading in commercial properties, the market in Berlin continued on its upward trajectory in the new year. At €2.3bn the volume of transactions was 171 % higher than in the same quarter of the prior year (€850m). This is the second-highest figure for the first three months of a year that Grossmann & Berger (G&B) has ever recorded in Berlin. Eight trades priced at more than €100m each played a role in boosting the result, as did the take-over of the alstria office REIT by Brookfield Properties, an asset management firm from Canada. The sale of this portfolio containing numerous properties around Germany added some €400m to the total in Berlin. However, the war in Ukraine, rising inflation, volatile interest rates and the ongoing Covid pandemic are all destabilizing market factors. G&B experts are already seeing the effects: “Loans, especially for forward deals, are already more expensive than four months ago because banks have started to charge risk premiums,” explains Holger Michaelis, managing director of Grossmann & Berger, a member of German Property Partners (GPP). He predicts that, “When central banks raise interest rates as anticipated, investors will increasingly reconsider their alternatives. This will affect selling prices and curb further increases.”  

Market details: 

• Accounting for 59 % of the volume, office properties were the most traded class of commercial property asset. Four of the eight trades costing more than €100m were in this segment. Second and third places went to mixed-use properties (17 %) and hotels (13 %).
• When sorting transactions by size, the dominance of large-volume trades in the €100m-plus bracket is apparent (67 % of total). In the same quarter of 2021 this category accounted for only 31 % of total trading.   
• Accounting for 45 % of the volume traded, fund managers were the biggest single group of buyers. This unusual circumstance is due to the alstria portfolio sale.
• On the selling side of the equation, listed real estate investment AGs/REITs formed the biggest group with 27 % - likewise a result of the alstria trade. Developers (20 %) and insurance companies (14 ) followed. 
• International buyers were strikingly active investors in Berlin, taking 83 % of the total volume traded (Q1 2021: 29 %). 
• Prime yields remained low because investors have so few alternatives. On commercial buildings it remained unchanged at 2.8 %. The prime yield on offices slipped back 0.10 percentage points year on year to 2.6 %, on logistics properties it contracted by 0.35 percentage points to 3.4 %.