High-streets to dominate German market this year - JLL

High-street retail deals will dominate the German investment market this year as liquidity shortages in the country impact on the average transaction size, says Gerhard Kemper, international director at Kemper's Jones Lang LaSalle Retail in an interview with PropertyEU. 'The investment market is very much dependent on the financing climate which has changed significantly over the past 12 months. It has become difficult to get financing for large deals. As a result, high street properties are turning out to be the most transacted retail type in the German market this year due to their smaller size, which does not create problems with financing,' Kemper points out.

He notes that stable consumer spending in Germany has been driving demand from retailers which remained strong over the course of the first half. 'Germany has not seen the excesses of other European markets over the past four years and the country has - so far - avoided steep price readjustments. The German market is basically unexciting: sometimes we brokers wish it would be more eventful but it's just not. It is solid and stable,' he comments.

According to Jones Lang LaSalle’s latest research issued in October, Germany remains the prime area of activity for retail investors, with a total volume of EUR 2 bn transacted in the first three quarters of 2008, representing 19% of total European volumes. However, the figure represents a drop from its 29% market share in the same period last year.

Kemper expects transaction activity in the country will see a flight to quality in 2008 as the loss of confidence prompts investors to focus on prime real estate. Kemper: 'Right now, investors want to make sure that the investment they are making is the right one. Prime high-street retail in big cities is a safe haven for them and that’s why everybody wants them in these uncertain times.' He also points out that the average yield for this type of real estate in Germany currently stands at 4.5%-4.75%.

Equity-rich German open-ended funds (GOEFs) are also expected to continue to invest in their home country by focusing on core products. 'They know that there is a window of opportunity now that will not last forever, but they are also being very prudent,' Kemper says. 'GOEFs could easily take advantage of distressed sellers but they prefer to look for quality assets which distressed properties generally are not,' he adds.

Although the retail sector is proving resilient to the upheaval caused by the global financial crisis, Kemper says that the office market in the country and in Frankfurt in particular is being hit hardest by the crisis. 'Frankfurt is the financial centre of Germany. If the financial industry catches a cold, Frankfurt will feel it the most,' he concludes.