For the 1st half of 2022, international real estate consultancy firm Cushman & Wakefield (C&W) in Berlin reports commercial real estate transactions with a volume of EUR 3.78 billion. This is 14 percent less than in the previous year and 2 percent less than the H1 five-year average. At EUR 1.88 billion, the transaction volume of the second quarter was similar to that of the first.
Office transactions dominate market activity
With 1.59 billion EUR and 42 percent of the total CRE transaction volume, office properties were again the leading asset class in the first half of the year. Four transactions exceeded the EUR 100 million mark, including the "Gloria Galerie" deal in Q1 2022 with a volume of over EUR 200 million.
Mixed-use properties achieved a transaction volume of around EUR 1.1 billion. The acquisition of 50 percent of the Sony Center for EUR 677 million by Norges and the sale of Galeries Lafayette for around EUR 300 million to Tishman Speyer made a significant contribution here.
Despite a sharp rise in financing interest rates and construction costs, commercial properties were still in demand in the first half of the year, generating a transaction volume of EUR 350m.
Logistics and industrial properties, at EUR 360m, and contributing 10 percent of total commercial real estate transaction volume, achieved a significantly better result than a year ago (EUR 132m, 3 percent). Retail properties did not play a major role, with EUR 130 million and a 3 percent contribution.
International demand for commercial property in Berlin was high contributing 65 percent of the capital employed in transactions.
Core+ was the segment with the highest transaction volume at 34 percent, followed by value-add at 30 percent and opportunistic at 23 percent. In contrast to previous years, transactions in the core segment only accounted for a minor proportion, at 13 percent.
Clemens von Arnim, Head of Capital Markets Berlin at Cushman & Wakefield, explains: "The rise in interest rates is having a strong impact on the prospective buyers’ calculations. Due to the low yields in the core segment, this risk class is affected particularly strongly. As a result, we are currently seeing fewer and often smaller transactions in this segment. As long as interest rate volatility remains high, pricing will remain difficult. In view of these conditions, institutional investors will not make any major investment decisions over the summer. We expect the most activity in the properly priced value-add segment because you can bridge a potential lean period in this segment with active development."
Interest rate turnaround causes prime office yields to rise - extent still unclear
In view of the significant increase in financing interest rates, office yields are rising and thus initiating a trend reversal. Currently, the prime office yield is 2.85 percent, 25 basis points higher than in the first quarter and a year ago.
For many properties on the market there is currently a significant gap between the asking and bid prices. Only when this gap closes will the exact extent of the yield increase become apparent. However, based on current financing conditions, C&W expects yields to increase further to the end of the year. Additional uncertainty is exerted by the impending gas supply cut-off, which could lead to a deep recession in Germany.
The prime yield for logistics properties is currently 3.10 percent, up 10 basis points on the previous quarter. For inner city and city centre commercial properties in prime locations, prime yields remained stable compared to the first quarter, at 3.30 percent.