Germany’s retail real estate market recorded an investment volume of around €9.4 bn in 2022, just 4% below the year-earlier level, according to new data from CBRE. At €2.5 bn, the final quarter also fell only a good €100 mln short of the previous year’s quarter.
Both the portfolio share (up six percentage points to 45%) and the proportion of international investors (down 1% to 32%), as well as the share of the Top 7 markets (stable at 25%) in the transaction volume saw no significant change in a year-on-year comparison.
'Despite the economic challenges and the multiple exogenous shocks, such as the war in Ukraine, the rise in energy prices and therefore in the cost of living, and ultimately the global interest rate turnaround, the German retail real estate market proved to be robust in 2022 in contrast to most other real estate asset classes. However, the retail real estate market also saw a decline in the number of active market participants,' said Jan Schönherr, head of retail investment at CBRE Germany.
Added Anne Gimpel, team leader valuation advisory services: 'Developments in 2022, first and foremost the interest rate turnaround, have also set yields on the retail property market in motion – and reduced the readiness to invest as players, confronted by uncertainty about price trends, have kept themselves to themselves and are observing the market for the time being.
'Especially in the final weeks of last year, we saw evidence of important landmark transactions that are likely to make a decisive contribution to the market’s revival – depending on further interest rate movements.'
Financing interest, measured against the five-year swap rate, increased by around three percentage points over the course of 2022 and has therefore definitively left an interest rate environment that had been negative for years. In parallel, the yield of ten-year German Bunds, considered the benchmark yield, rose by almost 2.7 percentage points to 2.6% at the turn of the year.
In view of the developments on the bond and credit markets, prime yields rose in all sub-asset classes in the retail real estate market, both in comparison with the previous quarter and with the year-earlier period.
Having captured a share of 48% in the transaction volume, retail warehouses and retail parks, including DIY and food markets, constituted the most important subasset class, as in previous years.
At 29%, shopping centres achieved a relevant share in the investment volume again, something they had not done for a while – in the two years previous, their share settled around the 10% mark respectively.
This development was mainly attributable to Oaktree Capital and Cura Vermögensverwaltung taking a stake in Deutsche Euroshop in the third quarter. Conversely, the share of high street retail properties in city centers entered a decline. Following on from 27% in 2020 and 20% in 2021, their share came in at only 15%.
'Food markets remained everybody’s darling in 2022. They almost always go hand in hand with long-term leases and tenants with good credit ratings. Investors are particularly appreciative of these characteristics in times of crisis,' said Schönherr.
'We assume that transaction activity will remain muted at the start of 2023 but that it will pick up momentum over the course of the early months,' Schönherr added. 'From an investor standpoint, we are seeing interest in all subasset classes, particularly also in DIY centres that hold the promise of better yield compared with retail warehouses and food markets.
'The market is still in wait mode only as far as department stores are concerned, which is mainly due to developments on the occupier market rather than interest rate uncertainties or pricing difficulties.'
