Investment market Berlin 4Q2022: Small-scale transactions instead of the typical large-volume trades

Wait-and-see stances and protracted sales negotiations slowed business on the investment market for commercial real estate in Berlin up to and including the 4th quarter. By the end of the year the volume of transactions had reached €7.8bn, which translates into a year on year decline of 26 %. This result is appreciably lower than the five-year average of €8.7bn but well above the ten-year average of €7.1bn.

“Towards the end of the year increased and volatile interest rates characterized the market for commercial property trading in Berlin. Investors still do not have a reliable basis on which to asses the costs of buying a property“, says Sandra Ludwig, managing director of Grossmann & Berger, member of German Property Partners (GPP). Many sales processes were delayed or broken off altogether. Above all in the 2nd half year institutional investors became conspicuously cautious.

Ludwig’s forecast for the coming year is, “In 2023 interest rates and the political situation in Eastern Europe will continue to rattle investors. In the middle of the year we expect to see a partial recovery, if stable interest rates permit more reliable cost calculations.”

Market details:

• Office properties were the most popular class of assets, accounting for 73 % of total demand. Mixed-use properties were the only other asset class to post a two-figure share of the total traded (10 %). Building land took third place, with some 7 % of the market.
• Transactions falling into the price category of €100m or more accounted for a majority of the total traded, as was the case a year ago. However, this category’s 2022 share of 67 % consisted of 24 trades and thus far fewer than in 2021 (34). Trailing some way behind came the next two price categories, €51m to €100m (17 %) and €26m to €50m (11 %).
• Portfolio sales generated about 34 % of the total traded.
• International investors comprised around 60 % of the market. By contrast with the 1st half year (71 %) they have become noticeably more cautious, accounting for 58 % in the 2nd half year.
• Investment managers were the most active group of buyers (16 %) but compared with the previous year their market share declined by some 46 %. This is attributable to caution and uncertainty on the part of their institutional investors. Second place was occupied by professionals’ pension schemes and pension funds (14 %), followed by open-ended property mutual funds (10 %).
• As vendors, investment managers (21 %) replaced listed real estate investment AGs/REITs as the biggest player group in the 4th quarter. Developers took second place, with some 16 % of the market.
• Berlin-Mitte sub-market accounted for the largest share of the transaction volume (23 %), ahead of Tiergarten (14 %) and Potsdamer/Leipziger Platz (10 %).
• Because interest rates were high, prime yields on every type of asset rose appreciably. Yields on office properties (3.00 %) and commercial buildings (3.25 %) rose by 0.30 and 0.45 percentage points respectively. The prime yield on logistics properties rose by 0.10 percentage points year on year to 3.50 %.