TOP 7 INVESTMENT MARKETS Q2/2022: Changing interest rates demand new strategies
HAMBURG / 01.07.2022
At the close of the 1st half of 2022 the volume of investments in commercial properties located in Germany’s top 7 cities totalled some €13.7bn. This represents a year on year increase of 10 %, but the figure is still strongly influenced by Brookfield’s take-over of the huge alstria portfolio in the 1st quarter and is not a true reflection of the state of the market. If the 1st quarter is discounted, a very different view emerges. Between April and June trading in investment properties located in the top 7 cities generated a mere €4.4bn, and the volume of transactions thus fell some 52 % below the same period a year ago (€9bn). Such a low 2nd quarter has not been seen since 2014 (€4.2bn).
These findings are contained in a survey compiled by German Property Partners (GPP), the commercial real estate network formed by Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate.
High interest rates are holding the market back
“In view of increased borrowing costs many investors are obliged to re-assess their plans and are therefore less willing to make investments. Moreover, it is difficult to plan investments due to considerable fluctuations in interest rates. Property owners, however, are not budging from their high asking prices. As a result, many negotiations have been suspended and postponed to a later date,” says GPP spokesman Andreas Rehberg describing the current scenario.
This challenging situation is reflected to varying degrees in the half-year results for individual cities. Year on year, lower volumes of trading are evident in Munich (-57 %), the only city not to benefit from the alstria sale, and in Cologne (-25 %) and Berlin (-5 %). Hamburg (+111 %), Frankfurt (+75 %), Düsseldorf (+61 %) and Stuttgart (+43 %) all succeeded in posting higher volumes than in the prior year thanks to some big-ticket sales and the outlier trade at the start of the year. However, if the 1st quarter is left out of the equation, then only Frankfurt (+20 %) and Hamburg (+3 %) posted growth in the 2nd quarter, and that only because the previous year’s results were poor, whereas all the other top 7 cities reported appreciably diminished trading volumes.
Yields expected to rise
The alstria take-over also had a huge impact on other market parameters in the 1st half year. For example, international investors were behind a massive 62 % of the total volume of trades (Q2 2021: 36 %) conducted in Germany’s top 7 cities. Likewise, the proportion of portfolio trades is correspondingly high at 40 % (Q1 2021: 11 %). By a considerable margin, offices were the most sought-after class of asset — their share of the market comprised 74 % of trading in the 1st half year. Pressure on yields has now grown appreciably as a result of increasing interest rates: “Although it is difficult to calculate prime yields at present in view of the low number of transactions, what is happening on the market in certain cities indicates an upwards trend, especially by comparison with the first quarter. It would seem that, for the present, the long period of falling initial yields has reached the end of the line,” remarks Rehberg. During the course of the year GPP expects to see prime yields rising in all top 7 cities.
FORECAST: REVIVAL IN THE SECOND HALF YEAR
It is hard to tell how the mood among investors in Germany’s top 7 cities will develop during the rest of the year because of the lack of certainty surrounding future global political developments. “Investors need to find a safe haven for their funds and will step up their efforts to achieve their investment objectives as the year progresses. If interest rates settle at a predictable level and buyers and sellers again share similar views on the value of a property, the market could revive in the fourth quarter when the process of adjustment has ended,” forecasts Rehberg.
An overview of the top deals and all relevant market figures can be found in the press release for download.
