Despite the global uncertainties the German economy began the year well. GDP increased by 0.7% compared to the first quarter of last year and is forecast to continue on a similar path. However, if trade tensions are not resolved and the Brexit process remains uncertain, among other issues, the economy could stagnate as resilience of domestic demand is tested to the limit.
Office
Compared to end of June 2018, the aggregate vacancy rate declined by seven percentage points from 4.5% to 3.8%. Due to the acute shortage and the unrelenting demand for high-quality office space, prime rents in four of the top-5 markets rose in H1 2019.
Office investment began 2019 with a quarterly investment volume of €5.8 bn and increased to €11.85 bn to the end of June. Constituting half of all commercial transaction volume office property remains at the top of investors’ shopping lists. Large single-asset opportunities in the
main markets attracted investors most strongly with the sale of Frankfurt office building Die Welle for more than €600 million flagging the largest deal so far. In the second quarter, prime yields remained static in three markets and compressed in Berlin and Frankfurt.
Retail
Despite a lower level of GDP growth and a cooling of overall sentiment among German corporates as measured by the ifo business index, general conditions for the retail sector remained robust. Unemployment decreased to a rate of 4.9% by the end of June and via collective wage negotiations, some growth in pay was agreed. Retail sales in the first five months of 2019 were stronger than in the same period last year, according to the German statistical office.
Industrial
Demand for warehouse and logistics space maintained its high level. In total, take up has reached almost 3 million sq m so far this year making H1 2019 a little weaker than the first six months of last year but reflecting the imbalance of demand and availability. Prime rents for logistics space increased in Hamburg by €0.20 per sq m and month and remained stable in the other major markets in Q2. Munich is by far the most expensive market.
New acquisitions of industrial and logistics assets reached an aggregated volume of €1.32 bn in the second quarter lifting the half year result to a total of €2.52 bn and re-confirming the strong investor interest in this asset class.
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