Investment in German retail property soars 54%

Investment in German retail property totalled €5.6 bn in the first nine months of this year, marking a year-on-year increase of 54%, according to research from Colliers International Germany.

'This development reflects the ongoing confidence that investors have in this type of property,' said Andreas Trumpp, head of research at Colliers International Germany. 'Retail properties accounted for almost 30% of the entire commercial property investment market and were the second favorite with investors after offices.'

Around 27%, or €1.5 bn, of the transaction volume was invested in retail portfolios from January through to September 2013. Notable deals included the sale of the Monsoon portfolio comprising 10 Kaufland branches to financial investor Cerberus Capital Management for €224.4 mln and the sale of a portfolio of three shopping malls in Berlin, Hamburg and Ingolstadt to Redefine International for €189 mln, Trumpp said.

'While the shopping malls reflect a core/core plus profile, the Monsoon portfolio can be classified as a value-add/opportunistic profile,' he added. International investors accounted for around 22% of investment volume at end-Q3, or €1.2 bn.

The strong growth in transaction volume can be attributed to several large-volume single and portfolio sales. The sale of the Kö-Bogen complex in Dusseldorf to Art-Invest for over €400 mln and the sale of the Aquis Plaza (formerly Kaiserplatzgalerie) in Aachen to KG Farmsen for €290 mln were the largest single-asset deals in the retail segment.

Some €2.2 bn of capital invested by the end of Q3 went to shopping malls, giving this asset class a transaction volume share of 39%. Retail centres and specialist retail stores recorded an investment volume of €1.7 bn followed closely by properties located in downtown areas such as commercial buildings and department stores.

While specialist retail stores mostly traded hands in the form of portfolios, shopping malls and retail centres as well as downtown properties were mostly sold as single sales. One third of the transaction volume, or almost €1.9 bn, was generated in the top six German real estate hubs of Berlin, Dusseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart as the result of a few high-priced transactions.

In addition to the Kö-Bogen deal, these include the Hallen am Borsigturm sale in Berlin, the Zeil 94 property and the Zeilgalerie in Frankfurt as well as Alsterhaus and the Saturn department store in Hamburg.

Retail market dominated by conservative investors
Open-ended real estate funds and special funds led the buying spree with a market share of 25% and a transaction volume of almost €1.4 bn. These were followed at some distance by private investors and family offices with an investment volume of €747 mln. Closed-end real estate funds, pension funds and superannuation schemes followed with an investment volume of €593 mln and €582 mln, respectively.

Demand for 'secure' property types was particularly strong, Trumpp said, pointing to commercial buildings in prime locations and newly constructed shopping malls in established locations. 'Prime commercial buildings in downtown areas in the top locations and shopping malls are expected to generate average top yields of 4.25% and 5.20%, respectively,' he added.

At the end of Q3, quality retail centres throughout Germany generated an average yield of 6.25% while individual specialist retail stores in established locations generated an average yield of 6.65%. In the shopping mall segment, excess demand is pushing yields below 5%, Trumpp added.

'This applies especially to prime properties, i.e. new buildings in excellent locations with a balanced tenant mix and effective overall concept.' He added that strong demand and activity would likely continue until the end of the year and beyond.