TOP 7 INVESTMENT MARKETS 2Q2023: Investors holding back in first half-year

At the close of the 1st half of 2023 the volume of investments in commercial properties located in Germany’s top 7 cities totalled some €5bn. This result represents a huge drop of 64 % below the figure posted in the same period of 2022 (€13.9bn). However, this latter result was skewed by Brookfield Properties’ take-over of alstria. Compared with the previous quarter (€2.6bn) the 2nd quarter is 11 % down. These findings come from research conducted by German Property Partners (GPP). This commercial property network consists of Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate.

“Transaction activity in all top 7 cities continues to be marked by investor reticence,” says GPP spokesperson Andreas Rehberg. “In the first and second quarters of the year only a few sales were completed; above all big-ticket transactions were rare.” There is nevertheless movement on the market, for example Signa Prime Selection bought back 20 % of the shares in several Kaufhof department stores from Hausinvest Fonds.

Transaction volume shrinks across the board 

“The challenging economic situation continues to create difficult conditions for investment,” says Rehberg. “Inflation and interest rates combine with an ongoing process of price discovery and make it hard to plan ahead. While other market players, especially institutional investors, are hesitating, private buyers with deep pockets are at an advantage.”

Year on year GPP noted that the volume of transactions dropped in all top 7 cities. The steepest drop was in Frankfurt, where the volume fell by 90 % to €319m. Similar figures were posted in Hamburg (-79 % to €520m), Cologne (-73 % to €160m) and Düsseldorf (-69 % to €460m). These massive reductions are all attributable to the alstria take-over, which fuelled transaction volumes in the 1st half of 2022 in all the cities apart from Munich. The Bavarian capital, Munich, posted a far smaller decline in the transaction volume (-5 % to €1.26bn). The reason for this is that the city profited from an outlier trade, namely the purchase of the PEP shopping centre for a very large amount of money. This transaction is to be counted in the last quarter of 2022. Berlin generated the highest trading volume at €1.9bn. 

The economic uncertainties are clearly reflected in office assets. Although they were the most traded assets at 43 % of the total volume, office real estate comprised a far smaller share of the market year on year, down from 74 %. Retail properties were also far more popular year on year, accounting for 29 % of the market volume, up from 4 %. Building land made up some 12 % of the volume traded. International investors, accounting for about 21 % of turnover, were cautious. Portfolio sales comprised 27 % of the transaction volume 

Yields rose on all classes of asset

Research by GPP shows that prime net yields on all classes of asset continued to grow. The prime yield on office properties in the top 7 climbed year on year by 1.05 percentage points to 3.81 %. Hamburg posted the biggest surge (+1.20 percentage points to 3.80 %). Cologne and Munich both saw similar growth, (each posted +1.10 percentage points to 3.80 %). Year on year the premium return on industrial and logistics properties in the top 7 cities grew by 0.89 percentage points to 4.26 %. GPP noted the strongest growth in Cologne and Munich (each up by +1.10 percentage points to 4.30 % and 4.20 % respectively). However, these figures are based on only a small number of reference cases.

Forecast: sluggish 2nd half year

In GPP’s estimation, the 2nd half of the year is unlikely to see a comprehensive recovery of the investment market. “Because the ECB is expected to announce more increases in interest rates, the process of price adjustments and a corresponding reticence on the part of investors is likely to continue for the rest of the year,” remarks Rehberg. “Only when people feel able to base their plans on predictable interest rates and borrowing costs, will trading pick up speed again.”