With a transaction volume of more than 3 billion euros, the Munich investment market for commercial real estate recorded its second-highest H1 result of the last ten years. After a weak start, market activity picked up significantly in the period from April to June to exceed the 2020 mid-year figure by 36 %.
Office properties drive transaction volume
A major contributor to the high result was three large-volume sales in excess of 600 million euros each. These totalled more than €1.9 billion and accounted for 60% of the transaction volume noted by Cushman & Wakefield. All three deals involved office properties, namely Highlight Towers in Parkstadt Schwabing, the O2 Tower with the neighbouring Campus C and the MediaWorks property in the Werksviertel at Ostbahnhof. As a result, the 2.6-billion-euro contribution of office properties accounted for 86 % of total commercial real estate transaction volume.
Hotel properties in second place and logistics suffer from lack available product
At around 6%, hotel properties follow far behind in second place. Transaction volume for logistics and industrial properties played a subordinate role in the Munich investment market with a share of 3%. Investor demand for this asset class is very high, but there is a lack of attractive core properties as well as suitable land for potential last-mile logistics and distribution halls.
Jan Isaakson, Head of Capital Markets in Munich at Cushman & Wakefield, explains: "The second quarter clearly sets the direction for the market. The focus is on office properties. Core properties with high occupancy rates and value-add properties in good locations are in demand. However, the supply is still limited. At the same time, the search profile of investors is increasingly expanding to take in logistics properties and life science properties, as well as residential properties. Vaccination progress is also bringing about a return towards normality and greater confidence concerning economic growth, so that we expect an increase in market activity in the second half of the year and an annual transaction volume of more than 6 billion euros."
Investors remain risk averse
Low-risk properties in the Core and Core+ risk classes accounted for 80% of commercial real estate investment volume in the first quarter . Opportunistic and value-add properties have played only a subordinate role and contributed less than 5 % to total investment volume. The participation of foreign capital was 35 % in the first half of the year and thus slightly above the roughly 30 % average of recent years.
Yields for city centre commercial properties and logistics properties almost at parity
The prime yield for core office properties in very good central locations was 2.50% at the end of the second quarter, ten basis points below the value twelve months ago. Across Germany, Munich remains the most expensive market for core office investment. Due to the high demand, Cushman & Wakefield expects a slight yield compression to the end of the year. In non-central locations, the prime yield for office properties is currently around 3.30%, which will probably also compress further by the end of 2021.
The prime yield for logistics properties is currently 3.30%, 60 basis points lower than at mid-2020, reflecting the high level of competition for this asset class. Further yield compression is to be expected. The prime yield for city centre commercial properties is 3.20 %. Its sharp rise in spring 2020 in response to the pandemic-related hardships for bricks-and-mortar retail is still having an effect. But a reversal of the trend is already discernible.