German office prices set to fall by over 25% - Henderson

Prices for offices in Germany's seven top-A office locations are set to fall by over 25% in 2009, according to the latest forecast from Henderson Global Investors. As a result, gross initial yields in those locations will rise from around 4.5% to 6.1%.

Just four months ago, the UK asset manager predicted a much softer landing for the German office market. But indicators for the German economy have shown a 'significant deterioration' in recent weeks, says research manager Stefan Wundrak. He notes that prices in the latest economic cycle will move by a total of around 160 basis points from their peak to their lowest point - and that in the space of just two years.

As far as the German market goes, patience is the watchword for potential buyers, according to Henderson. Although sale offers are already being tabled by German and international investors who bought property at high prices between 2005 and 2007, Henderson prefers to wait for the pressure on heavily leveraged players to rise further. 'The office rental market will cave in more strongly in 2009 and 2010 than predicted a few months ago. The increased pressure on rental prices has not yet been factored into the current sale offers,' says Wundrak. Henderson expects prime office rents in Germany will fall by around 15% over the next two years.

In the UK, Henderson sees opportunities arising in the retail warehouse market in particular as more retailers threaten to go bankrupt. 'Tenant cashflow threatens to dry up due to the collapse in consumer demand and more retail failures - besides badly performing dinosaurs like Woolworths - are inevitable,' says Michael Englisch, head of Germany at Henderson Global Investors. Correspondingly, initial yields for retail warehouses have already moved beyond 7%. 'Now is the time for cherry picking,' he adds.