The German commercial real estate investment market recorded a transaction volume of €41.1 bn in the first nine months of the year, in line with the five-year average and a decline of only 9% year-on-year, according to a new report published by broker Savills.
Prices remained predominantly stable, at least in the prime segments. Savills expects the transaction volume for the full year to reach around €55 bn, down from €71 bn last year and below the €62 bn five-year average.
German (60%) and other European buyers (32%) dominated the market in the last two quarters. Property companies/REITs, special funds and insurance companies/pension funds in particular showed above-average activity during this period. The latter have already invested around €2.5 bn this year, which is more than all of 2019.
Almost three quarters of the acquisition volume from insurance companies/pension funds flowed into office properties. Office properties accounted for 44% of the overall transaction volume in the first three quarters, followed by retail (23%) and industrial properties (11%). In all three sectors, the transaction volume was lower than in the corresponding period last year. However, mixed-use properties (+21% year-on-year) and care homes (+26%) recorded an increase in transaction volumes. Development sites also enjoyed marginally higher investment year-on-year (+8%).
Matthias Pink, head of research, Savills Germany, said: ‘The fact that we are in the middle of a year of crisis is not evident from a superficial look at the figures. Signs of the crisis only become apparent upon closer inspection. This demonstrates how well the German market is faring despite the crisis.’
Despite the overall subdued transaction activity, prime yields remained stable in the third quarter. For logistics properties, the yield compression of recent years continued. The prime yield hardened by 20 basis points quarter-on-quarter to 3.5%. However, only the absolute prime properties witnessed an increase in prices. When it comes to evaluating risk, tenants and their credit ratings are once again playing a greater role for investors than before the crisis. This is the case across all sectors.
Marcus Lemli, CEO Savills Germany and head of investment Europe, noted: ‘Prior to the crisis, prime properties in prime locations were often attracting top prices regardless of the letting situation. In view of the increased uncertainty surrounding the lettings markets, shorter lease terms or weaker credit ratings are now being reflected in occupiers’ willingness to pay to a far greater extent. For some office properties let to the state for 10 years or longer, we are even seeing higher prices than at the start of the year. The core segment has become narrower and the price differential with the rest of the market has widened.’
