A transaction volume of around EUR 12.6 billion was achieved on the German investment market for commercial real estate in the third quarter of 2022, bringing the result for the first three quarters to EUR 40.24 billion. This corresponds to Q1-Q3 5-year average. Compared to a year previously transaction volume has risen by 6 percent.
Interest rate uncertainty will prevent year-end rally
The positive picture of the transaction volume compared to the previous year cannot hide the fact that the in-vestment market is in a difficult situation. The uncertainty among market participants regarding pricing triggered by the interest rate turnaround has significantly reduced the number of property transactions from the high levels of recent years. "The market remains well below its potential. The supply is there, but there is a lack of buyers. Core product in particular is being left on the shelf, as the fear of finding out in six months that one has bought too expensively is too great. This worry will remain for a few more months," explains Alexander Kropf, Head of Capital Markets bei Cushman & Wakefield in Deutschland.
Economists agree that the ECB will continue to raise key interest rates, but it is unclear how often and by how much. This means that there is still no reliable financing band for investors. Against this background, there will be no year-end surge in 2022. C&W therefore forecasts a transaction volume of only slightly over EUR 50 billion for 2022 as a whole. This would bring it back to the level of the years pre-2017.
Yields continue to rise
The rise in yields that began in Q2 continued in Q3. In the top-7 markets, the median prime yield for office properties is now 3.23 percent (+24 basis points), for mixed commercial properties 3.45 percent (+8 basis points) and for logistics properties 3.61 percent (+50 basis points). The median prime yield for offices is thus higher than it has been since mid-2018.
Munich remains the most expensive office market (3.00 percent), followed by Frankfurt (3.10 percent), Hamburg (3.15 percent) and Berlin (3.20 percent). For mixed commercial properties, Munich and Düsseldorf are the most expensive markets, both with prime yields of 3.10 percent. Logistics properties in Stuttgart (3.70 percent) are 10 basis points higher than in the other six top regions.
In view of the expected further interest rate hikes, C&W expects yields to continue to rise in the coming months.
Sales volume of retail and logistics properties records strong increase
In the year to date, office properties have accounted for the largest proportion of transaction volume, at around 41 percent and EUR 16.34 billion, confirming their customary first place among investors. However, their transaction volume has not increased compared to the same period last year, despite two large deals in the first quarter (acquisition of “alstria office REIT-AG”, > EUR 4 billion; Marienturm in Frankfurt/M., > EUR 800 million).
The situation is different for logistics and industrial properties. Here, the transaction volume increased by 38 percent year-on-year and reached a new record of EUR 7.92 billion. This development was driven in particular by several large-volume takeovers and portfolio sales in the first half of the year.
In the retail property segment, an increase in the stake in Deutsche Euroshop AG held by Oaktree and Cura Vermögensverwaltung for well over EUR 1 bn in the third quarter ensured that the transaction volume for retail properties rose by 20 percent year-on-year to EUR 6.3 bn. At the same time, this is the second-largest deal in the current year and the largest deal involving shopping centres in recent years.
The contribution of hotel transactions to transaction volume was EUR 1.15 billion or 3 percent. Compared to the previous year, this was a fall of around 7 percent.
The EUR 8.53 billion accounted for by transactions outside the four classic main types of use was generated primarily by sales of mixed-use properties and development sites. These two asset classes account for just under 16 percent of total transaction volume.
Single-property transactions dominate
Portfolio transactions, which also include corporate investments such as in Deutsche Euroshop AG and acquisitions such as that of “alstria office REIT-AG”, accounted for 35 percent of the transaction volume. Individual property transactions dominated, with 65 percent. International capital contributed 46 percent to the overall result and invested mainly in large volume assets. For example, in the third quarter Swiss Life AM acquired the Voltaire office property in Berlin for more than EUR 400 million.
Berlin strongest top-7 market in terms of transaction volume
Around EUR 21.1 billion was invested in the top-7 markets in the first nine months of 2022, which corresponds to 53 percent of the total national market transaction volume. Compared to the same period last year, this increased only slightly, by two percent.
Berlin leads the ranking with a volume of EUR 5.9 billion It is followed by Frankfurt with EUR 4 billion, Hamburg with EUR 3.6 billion, Munich with EUR 2.9 billion and Düsseldorf with EUR 2.8 billion. Cologne just exceeded the EUR 1 billion mark, Stuttgart remained below it, at around EUR 0.9 billion. Düsseldorf and Hamburg in particular, but also Stuttgart, recorded increases in turnover, while the other markets remained below their previous year's figures.