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Top 7 Investment Markets Q4/2017
Transaction Volume Second Only To 2007
“Not only did the top 7 locations surpass the prior year’s volume of transactions, but the result was also the second highest since 2007,” says Guido Nabben, spokesperson for German Property Partners. “This level of investment underlines just how huge demand remains for every type of commercial property asset.” Due to a shortage of properties for sale, GPP does not believe that the year 2018 can fully repeat the performance of 2017.
Top 7: CBDs ACCOUNT FOR THIRD OF TRANSACTIONS, INTERNATIONAL PLAYERS FOR HALF
Overall the office sector was, as in the past, the most traded class of asset in all top 7 locations, with sales of €21.8bn (+5 % year on year). The hotel sector placed second (€2.4bn and -10 %), barely ahead of retail properties (€2.3bn and -1 %). Sales of building land also topped the billion mark, totalling €1.72bn (+35 %). Mixed-use commercial buildings accounted for trades of €814.6m (+226 %), thus overtaking logistics properties with €615.7m (-17 %).
In each of the top 7 locations, almost a third of the total volume - €9.2bn - involved property sales in the central business districts (CBD) or the central areas of the inner city. International investors continued to take a great interest in commercial properties located in Germany’s top 7 locations and, having increased their activities somewhat, these players accounted for nearly half of the total volume traded. Portfolio sales made up 23 % of the total trades in the top 7 locations, practically the same proportion as in 2016. In view of the mismatch between supply and demand the average prime net yield continued its downward slide across all asset classes and top 7 locations. GPP noted the lowest average prime net yield at 3.06 % on commercial buildings, followed by 3.26 % on office buildings. As already noted at the end of 2016, the downward trend was most obvious for logistics properties, with yields falling by 0.34 percentage points to 4.69 %.
INDIVIDUAL MARKETS: MAJOR DEALS PROPEL BERLIN, COLOGNE AND DÜSSELDORF
At the end of 2017 Berlin posted the biggest increase in the volume of transactions, which rose by +45 % to €7.3bn. The result returned by the capital city was its second-best ever, partly due to 13 agreements each worth over €100m, five of which had price tags of over €200m. The Sony Center on Potsdamer Platz was in this category; a consortium headed by Oxford Properties paid €1.1bn for this complex alone. In 2017 it was the biggest single commercial investment transaction in any of the top 7 locations. By the end of the year the prime net yield was 2.90 % on commercial buildings in Berlin and 3.0 % on office buildings. At the start of the year properties with a total valuation of more than €1bn are already on the market.
Cologne also set a new record with year-on-year growth of 28 %. The transaction volume of €2.3bn was some 20 % higher than the previous record set in 2015. This total stemmed from several sales of large property complexes and portfolios at prices in the three-figure millions bracket. These included the Gerling Quartier, for which Proximus and Quantum paid Immofinanz some €200m in the 1st quarter. In 2017 the prices of commercial buildings and offices in Cologne both rose, causing net prime yields to sink to 3.20 % and 3.70 % respectively.
GPP also noted a new record in Düsseldorf, where the sales of commercial properties reached a total of €3.0bn by the end of the year. The volume of transactions was 13 % greater than the result in 2016, which till then had been the second highest ever recorded. The biggest trade of the year in Düsseldorf was the Vodafone Campus, which AGC Equity Partners sold in the 4th quarter to Mirae Asset Global Investments for some €280m. Year on year the net prime yields in Düsseldorf slipped a little to 3.40 % on office properties and 3.50 % on commercial buildings.
The second-biggest city for investment transactions was Frankfurt, where business was dominated by demand for core properties in premium locations, which accounted for about half of the total trading volume in 2017, as was the case in other years. The sale of Tower 185 in the 4th quarter played a key role here; it was one of the biggest single-property transactions in Europe. Deka bought the tower for €775m from CA Immo, WPI Fonds SCS-Fis, Fagas Asset and a pensions company. The total volume of transactions in Frankfurt rose by 2 % year on year to €6.6bn. Frankfurt, located on the River Main, also saw prime net yields slip further back, to 3.40 % on commercial buildings and 3.30 % on offices.
Brisk trading in commercial properties in Munich showed no signs of slowing in 2017. The sales volume in the third biggest city of the top 7 was €5.7bn, despite a 12 % drop compared with 2016. This decline is due to an appreciable reduction in available properties. Nevertheless, here too the 4th quarter saw one sale with a price tag in the mid range of treble-digit millions. RFR Holding sold Karstadt, a department store by the main station, to Signa Holding. Compared with the preceding quarters, the decline of the prime net yield has slowed slightly in Munich and is now at 2.45 % on commercial buildings and 3.00 % on offices.
The Signa Prime Selection Fund purchased two properties in Hamburg in the 4th quarter for a price in the treble-digit millions; named Arkadenhof and Kaufmannshaus, the properties were part of a portfolio acquired from RFR Holding. Despite this, the volume of transactions, totalling €3.9bn, fell 13 % short of the record result of the prior year, when €4.5bn was posted. Most investments were made in the sub-markets Harburg and City South which each posted 19 trades, whereas in City only 18 were counted. Investors’ interest in alternative districts underlines the ongoing lack of core products in the city centre. The decline in yields was especially noticeable in Hamburg. The prime net yield dropped below the three-per-cent threshold on both office properties and commercial buildings, reaching a new record low of 2.90 %
Stuttgart generated a transaction volume of €1.2bn and thus attracted much less investment activity than in prior years. The volume traded was more than a third less than in the record year of 2016. This was due partly to a lower supply of properties and partly to transactions with double- and treble-digit-million price tags that are still in the pipeline. GPP therefore expects to see the volume of transactions rise well above €1bn in 2018. However, 2017 did see two transactions in the treble-digit millions bracket; in the 2nd quarter Hines sold the Mercedes-Benz Bank to the foundation Baden-Württemberg Stiftung for some €120m and in the 3rd quarter Conren Land, acting for a Spanish family office, sold the City Plaza office building for over €100m to the Zurich Gruppe Deutschland. By the end of 2017 there had been no change in the low levels of prime net yields seen in 2016 - 3.10 % on commercial buildings and 3.50 % on offices.
“In 2018 commercial properties in Germany’s top 7 locations are set to remain a good investment. However, this presupposes a stable, predictable environment on the capital markets and on the political stage,” says Nabben. “In view of the remarkably high demand and the glut of cash for investment it is unlikely that there will be any great atmospheric changes in the property investment markets in the top 7 locations.”
GERMAN PROPERTY PARTNERS
German Property Partners (GPP) is a nationwide network of property service providers in the commercial segment which are leaders in their local markets. These comprise Grossmann & Berger, ANTEON Immobilien, GREIF & CONTZEN Immobilien, blackolive advisors and ELLWANGER & GEIGER Real Estate. The network's greatest strengths are in-depth knowledge of local markets, the long service history of the partner companies' real estate consultants and the strong personal commitment of the owners and directors. The network is represented by offices in Hamburg, Berlin, Düsseldorf, Cologne | Bonn, Frankfurt, Stuttgart and Munich. It offers services in matters of property investment and commercial lets, in the property management, valuation and research business, plus banking, financial and administrative services. Currently more than 400 property experts act for German Property Partners. Nationwide, the network brokered lets in 2017 involving 525,000 m² of commercial property and managed transactions totaling €2.05bn.
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