According to research by international real estate consultancy firm Cushman & Wakefield, the Frankfurt investment market’s transaction volume for commercial real estate and development projects amounted to approximately EUR 4.6 billion in 2022. Compared to the previous year, this corresponds to a decline of 22 percent and fell short of the 10-year average by 24 percent. After an already weak 3rd quarter, the trend continued in the final three months of 2022. The usual year-end surge failed to materialize, resulting in an investment volume of only EUR 590 million in Q4.
Office segment still dominates
The majority of commercial real estate investment flowed into office properties in 2022. This asset class contributed about 75 percent and thus about EUR 3.4 billion of transaction volume. Of this, EUR 330 million was invested in the final quarter of 2022. The largest office transaction of the fourth quarter did not take place in the city centre, but in Sossenheim on the outskirts of the city. The acquired property is to be converted into a data centre.
The office sector was followed by logistics and industrial property with an annual transaction volume of approximately EUR 450 million whereby the largest deal was the sale of two logistics properties in Frankfurt's Cargo-City-Süd by DWS to Garbe Industrial for EUR 126 million.
The sale of land, mixed-use properties and data centres accounted for a total of around EUR 575 million and the hotel transaction volume was EUR 145 million. No retail property transactions took place during the year.
Michael Fleck, Head of Capital Markets Frankfurt at Cushman & Wakefield, explains: "In Q4, office transactions in the upper double-digit million euro range in particular remained scarce. Large transactions are not expected in H1 2023 either. Only if the tense financing environment recovers in the further course of the year can large-volume transactions in the CBD be expected again."
Yields on the rise
The net initial yield for prime office properties in prime locations was 3.35 percent at the end of 2022. Compared to the previous quarter, this represents an increase of 25 basis points. In non-central locations, the net initial yield for prime office properties remains stable at 5.00 percent.
First-class logistics properties are currently trading at a prime yield of 4.00 percent. This value represents an increase of 40 basis points compared to the end of September 2022. City-centre mixed-use commercial properties were quoted at 3.75 percent, 15 basis points higher than in the third quarter of 2022. C&W expects further yield increases in the course of 2023 due to the ECB's planned interest rate hikes.