GERMANY - Investment in secondary German commercial is paying off, according to Swiss private equity investor Corestate Capital.

Comments come after a spending spree that has seen the Zurich-based firm acquire 33 properties across western Germany since November - around 80% of them earmarked for office and retail. With €1.2bn now invested in the market, it has announced plans to invest a further €1bn before the end of the financial year.

The firm claims the attractiveness of the secondary market is the relatively long leases and annual rents representing a 7.5% gross initial yield, despite a 13% vacancy rate.

Its targets are in secondary locations in major cities, and in prime locations in supply-town secondary locations. According to spokesman Oliver Stumm, these assets tend to fly "below the radar of large players".

"The concentration on secondary locations in primary cities and primary locations in secondary cities is one of the main pillars of our investment strategy for our commercial fund," he said. "Generally speaking, we expect lower prices and therefore more upside potential because the market demand isn't as competitive as for ‘A' locations in primary cities."

Corestate has adapted its off-market acquisition approach from its residential portfolio.
"Our view of the residential market is still positive, because the German economic fundamentals and the fundamentals of the German residential market are still positive," added Stumm.