According to internationally active real estate consultancy firm Cushman & Wakefield (C&W), Frankfurt’s commercial real estate transaction volume fell short of the previous year's total by approximately 10 percent at around EUR 5.9 billion last year. The main reason was the national lack of corporate takeovers, in contrast to 2020 when these had a significant influence on market activity, with numerous properties in Frankfurt changing hands. Nevertheless, the overall annual result is 1.9 per cent above the ten-year average. It is striking that the 88 individual property transactions in the market was an increase of more than 60 per cent compared to 2020, a clear indication of an intrinsically high level of market activity.
Weak 4th quarter in terms of turnover
The usual year-end spurt failed to materialise in Frankfurt in Q4 2021, as some large transactions such as the "Marienturm" did not close. With a transaction volume of approximately EUR 900 million, it was the second-weakest quarter of the year. The largest deal of the past three months was the sale of the "Fürstenhof" to Momeni for more than EUR 170 million. By far the largest transactions of the year as a whole were the transactions of the high-rise "T1" and "Skyper" properties for EUR 1.4 billion and EUR 550 million respectively.
Office segment expands dominant position
In 2021, the office segment accounted for 82 per cent of transaction volume in Frankfurt. This corresponds to an increase of eight percentage points compared to the previous year. Starting from an already low level, retail properties lost further market share and only achieved a transaction volume of EUR 50 million. Only a few smaller transactions were registered here, such as the sale of the Lorey building to LBBW. The logistics sector also played a subordinate role with 260 million euros contribution 4 per cent of the transaction volume. The largest deal in this segment in 2021was the sale of two light industrial properties in the east of Frankfurt for EUR 46.5 million.
Richard Tucker, Head of Capital Markets Frankfurt at Cushman & Wakefield, summarises: "The ECB is maintaining its loose monetary policy and zero interest rate despite significant increases in inflation in the Eurozone. As comparably safe investments hardly bring any returns, real estate in major cities such as Frankfurt remains in demand. Only the lack of corresponding investment product availability is currently preventing higher volumes on the market. The transaction volume in 2022 will therefore be between EUR 6 billion and EUR 6.5 billion, in the range of tense equilibrium between product supply and investors’ capital placement pressure."
Slight yield compression
Net initial yields for prime office properties in prime locations moved in by 15 basis points to 2.60 per cent in Q4. Compression of 15 basis points to 4.30 per cent was also registered in non-central locations. Due to the lack of product supply in the city centre, C&W expects an increased shift in activity to locations outside the city centre, which will lead to price increases there.
The yield for high-quality logistics properties was 3.00 per cent at the end of the fourth quarter, which corresponds to compression of 10 basis points compared to the previous quarter. A further slight increase in prices is expected for this asset class by the end of 2022.