The German investment market for commercial real estate achieved a transaction volume of around €22.1 billion in the first half of 2021 of which the second quarter contributed €12.5 billion. The previous year's first-half result of just under €28.8 billion was thus missed by 23%. Compared to the H1 10-year average, however, the transaction volume is 13% higher. The largest deal so far was the sale of the ‘Fürst’, a mixed-use development on Berlin’s Kurfürstendamm to Aggregate Holdings for more than €1.2 billion. The three largest office transactions took place in Munich, including the trading of the Highlight Towers and the O2 Tower. Overall, new investment in office buildings and office developments totaled €9.4 billion and 43% of the total transaction volume.
In the top-5 German markets, Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, more than 4 million m² of new office space is under construction with 70% (2.9 million m²) of this due for completion within the next 18 months, 48% of which is pre-let. As total completion figures for 2021 and 2022 will be higher than in recent years and take-up figures are expected to be lower, the overall vacancy rate in the top-5 markets is expected to increase to 5.5% by the end of 2022. Purely speculative development projects which are not yet under construction are currently being carefully reconsidered and may be postponed.
Since the end of June firms are no longer obliged to allow their office employees to work from home if they request it.
Offices are becoming more populated again and, in consequence, city centres as well.
Nevertheless, a law giving employees the right to work from home for a given number of days per annum is being considered by some political parties and Unions.
A few large employers plan to offer spaces in regionally spread-out satellite offices to reduce commuting times while also clustering people together.
In the first half of the year, occupiers signed new leases for a total of 1.1 million sq m of office space in the five major German markets.
The same total result was seen for the equivalent period last year, however, take-up figures in Düsseldorf and Munich are lower than 2020 while take-up increased in Frankfurt, Berlin and Hamburg.
Office vacancies increased in all five markets, most strongly in Berlin and Munich, nevertheless, vacancy rates in these markets are still below 4%, while Frankfurt’s vacancy rate is now 8.1%.
Prime rents range from €28.50 per sq m in Dusseldorf to €46.00 per sq m in Frankfurt.
Last week, the revised national climate protection law passed the Bundestag and Bundesrat and in addition the Government agreed the National Climate Protection Crash Programme 2022.
Germany has committed to being climate-change-neutral by 2045 with carbon emissions to be cut by 65% compared to their 1990 level by 2030.
This means decarbonisation of real estate stock and eco-friendly new construction will become more or less a must, as carbon emissions of buildings are not to exceed 67 million tonnes; compared to 210 million tonnes in 1990.
However, the law did not include measures to make photovoltaic roof arrays obligatory for new developments.
In addition, the extra carbon price paid for fossil fuel heating of dwellings remains 100% borne by the tenants, proposals to split the costs between landlord and tenant were rejected.
The elections for the German Bundestag will take place in three months, and in recent weeks the political parties have discussed and agreed their manifestos, almost all including carbon footprint reduction measures and measures to control residential rental growth rates.
Meanwhile, in Berlin a petition on holding a referendum on introducing compulsory acquisition of large residential property companies achieved the required number of signatures.
Over recent days, ever more COVID-19 driven restrictions on business and public life have been eased, as the nationwide 7-day incidence figure has fallen below 20 new infections per 100,000 people and almost half of the population have received at least one vaccination, partly as prioritisation was dropped and many firms established in-house vaccination centres.
Footfall in high streets is returning as shops, restaurants and hotels are permitted to welcome more customers and most cross-border travel no longer requires quarantine.
Delivery of food at ‘cyberspeed’ - within 10 to 15 minutes of ordering has become ever increasingly popular over the pandemic year and is forecast to grow further.
German food retailer Rewe therefore concluded a strategic partnership with speed delivery service Flink but will at the same time enlarge its own e-commerce channel and expand several of its own supermarkets into larger shops of at least 3,500 sq m of sales area.
Topics that had slipped from public consciousness for many months have returned - specifically sustainability and carbon reduction.
Driven by the EU and by national goals, demands to make real estate assets more sustainable are increasing.
Last week it was revealed that one of the discussion points for the national crash program for climate protection is to make photovoltaic roof arrays obligatory for new developments.
The 7-day incidence figures have fallen below the threshold of 50 new infections per 100,000 people in most cities and counties, allowing the return of more personal liberties and bringing business life closer to pre-pandemic normal. However, social distancing and the wearing of medical face masks remain obligatory, the numbers of people visiting shops, hospitality and leisure infrastructure facilities are restricted and office employees should still work from home wherever and whenever the business processes allow. The latter rule remains in force until the end of June.
Discussions continue regarding remote working in the future. The green party proposed giving employees the legal right to work remotely, the trade association regards this as a needless intervention into business processes. At the same time there is consensus that the traditional German culture of in-office working will move towards more location flexibility, including a change in the size of office spaces required by individual firms. For example, the German tourism company TUI Group announced that they plan to offer their 3,000 employees no more than 1,700 desks from 2022; a move supported by an employee attitude survey whose results clearly showed they wish to work from home more often.
25 MayIn many municipal areas, the 7-day incidence figures (the percentage of people testing positive for COVID-19) are now below the threshold of 100 new infections per 100,000 people, meaning that these cities and counties no longer fall under the rules of the national obligatory ‘emergency brake’ but those of the individual federal states, permitting specific easing regarding personal meetings and phased openings of retail, hospitality, personal services and sports facilities.
Every federal state has compiled transparent road maps for the easing of restrictions thus giving businesses more planning reliability than in previous months.
However, physical distancing and the wearing of medical face masks remain obligatory. In addition, employees should still work from home wherever and whenever the business processes allow this. If this is not appropriate the employer has to offer COVID-19 testing twice a week. Thus far, approximately 10% of the German population are fully vaccinated and in addition over 20% have received a first vaccination.
According to STR, the hotel room occupancy rate was 10.7% in the first quarter of 2021, a decline of almost 78% compared to the equivalent quarter in 2020. Footfall figures in the high streets are still at a very low level.
In Germany's commercial property market, the most immediately visible impact of the Government measures taken against the spread of COVID-19 can be seen in the retail sector.
Most non-food retail and all leisure retail is closed. Food & Beverage outlets are only open for take-away. Some retailers are trying to shift to alternatives like delivery services, especially restaurants, even though their turnover will not be as high as usual, it will at least help their chances of survival.
The longer the resulting loss in turnover continues, the more difficult it will be for retailers to pay rent. According to the German Retail Association (HDE), 3 months without turnover would result in many medium-sized retailers becoming insolvent. Besides the obvious problem on the supply side, the consumers’ willingness to buy is also low right now, because of the economic uncertainty - see GfK consumer index.
Restaurant chain Vapiano (230 restaurants in 33 countries; 55 in Germany) and steakhouse chain Maredo (37 restaurants in Germany and Austria) have already become insolvent, although Vapiano was known to be struggling long before this.
The German Government is now offering help to affected businesses in the form of:
- Tax deferrals; and
Only small businesses of up to 10 employees are eligible for benefits in the form of non-loan payments. The German Retail Association has criticised that medium-sized companies are not covered by this. Additionally, a new bill has passed - effective 1 April to 30 June disallowing landlords to terminate contracts where their tenants (commercial or private) can’t pay rent because of the effects of the COVID-19 pandemic.
Nevertheless, some companies with strong balance sheets, like Adidas, announced last week, they would cease rent payments, which has led to a public discussion about solidarity.
Other major retail tenants like Deichmann and H&M have done the same, others are talking to their landlords about possible solutions.