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Broken-off deals impact Frankfurt's CRE investment market

06/04/2023

Commercial real estate transaction volume in the Frankfurt market amounted to around 165 million euros in Q1 2023. Compared to a year earlier, this corresponds to a decline of 93 percent. The 10-year average was also undershot by 85 percent. The last time there was an even lower Q1 result was thirteen years ago.

No large-volume transactions
At just under 80 million euros, 48 percent of the recorded transaction volume is accounted for by land, mixed-use properties and data centres. Approximately 45 percent (around 75 million euros) was generated by the sale of office properties. In this asset class, the transactions which took place were all in the small-volume range of up to 30 million euros. The focus was on properties in the Value-Add and Opportunistic risk classes, which were generated in peripheral locations of the market area.

Logistics and industrial properties achieved a transaction volume of approximately 10 million euros in the first quarter, contributing around 7 percent of the CRE total. No sales of retail properties or hotels took place in the first quarter. 

 

Investment market Frankfurt Q1 2023

 

Michael Fleck, Head of Capital Markets Frankfurt, explains: "Aborted or frozen transactions with a potential volume of more than 2 billion euros in the past twelve months underline the extent of the lack of available product and the continuing uncertainties in the financing sector. This is reflected in the Q1 result in Frankfurt’s commercial real estate investment market and can also be interpreted as an omen of a record low transaction volume in 2023 as a whole."

Yields continue to rise
The net initial yield for prime quality office properties in prime locations is 3.80 percent at the end of Q1 2023. Compared to the previous quarter, this represents an increase of 45 basis points. The net initial yield for prime office properties in non-central locations has also risen; to 5.50 percent, 50 basis points higher than in the previous quarter. 

First-class logistics properties are currently trading at a prime yield of 4.15 percent. This is an increase of 15 basis points compared to the end of December 2022. 4.10 percent was quoted for city-centre commercial properties, 35 basis points more than in Q4 2022.

 

 

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