Investment Market Overview. Germany 3 rd quarter 2017 Published in October 2017

Transcription

1 Investment Market Overview Germany 3 rd quarter 2017 Published in October 2017

2 Strong investment demand pushes yields down further Experience has shown that political conflicts tend to have only a temporary downward effect on stock markets. That certainly proved to be the case after the recent German parliamentary election. After briefly posting negative figures, the German DAX index immediately returned to positive territory. Although the election result means that the formation of a new government is expected to be a tedious and protracted affair, at least the fact of Merkel s re-election had been generally anticipated. From a business and economic perspective, the message is loud and clear: it is now essential that progress is made. Urgent issues such as the future of Europe, structural reforms of the employment market, immigration, energy policy and digitalisation must form part of the government agenda, and this requires a stable and effective government to be in place as quickly as possible. For now, the financial markets have put the political elections in Europe behind them, and appear to have emerged relatively unscathed. From a financial perspective, far more relevant issues include Brexit, President Trump s use of Twitter as a political platform, and the interest rate policies of the Fed and the ECB. Property investors are also focusing on these topics. In a recent survey of German investors conducted by JLL, the majority of respondents cited Brexit as the political event with the greatest influence on the German property market, with expected benefits and stimuli for continental Europe and especially for Germany. This is expected to lead to rising investor demand and higher prices. The respondents cited interest rate policies or the current interest rate as the second most relevant issue. According to many investors, a reversal on interest rates in Europe is not apparent or expected in the near term. Property yields therefore remain under pressure. As long as the current spread remains between property investment returns and government bond yields, investments will also remain at a high level on German property markets. At the same time, the United States is a frequent focus of attention. Here, the Fed has already announced further hikes in the interest rate, so that the interest rate gap is increasing between Europe and the United States. The question is, to what extent and how quickly the pressure will increase on the ECB to also adjust interest rates in Europe. But as long as this does not happen and the continuing low inflation rates in the eurozone still pro- Transaction Volume Germany Investment Market Overview 3 rd quarter

3 Transaction Volume by Risk Profile of the Investments an increase of 19% compared to the previous year and is also the second-best result for a nine-month period since At present, there is no reason why this development should not continue into the fourth quarter. In view of this fact, we are forecasting a full-year transaction volume of 50 billion to 55 billion. vide the right conditions for interest rate hikes the level of interest rates also remains the driving force for the German investment market. Transaction volume increases significantly compared to the previous year The German commercial property investment market broadly maintained its strong momentum during the summer months. Although the investment volume in the July- September quarter was somewhat lower on a quarterly basis at 12.8 billion, the number of transactions did not signal a slowdown in demand. The fact remains that suitable products are still in short supply. This is also reflected in the results of our September survey: almost half of all respondents intend to increase their property portfolios on balance in the next 12 months, while a further almost 40% want to keep their assets. For the overwhelming number of investors we surveyed, the main stumbling block is still the shortage of available properties. In the first nine months of 2017, the total transaction volume in Germany amounted to 38.6 billion, which represents Largest single transaction of the year took place just before end of quarter portfolio transactions make disproportionately large contribution to the result The largest transaction within the assessed quarter, as well as the largest individual deal in the year to date, took place at the end of the quarter and concerned the sale of the Sony Center in Berlin to a Canadian pension fund for around 1.1 billion. The second-largest deal in the third quarter involved the sale of 11 hotels to a globally active fund manager in a portfolio transaction worth 465 million. In the first three quarters, this deal managed to achieve fifth position. In general, the trend of buying portfolios has continued this year with seven of the ten largest transactions relating to portfolio deals, accounting for a combined volume of 5.4 billion or around 14% of the transaction volume in Germany. In view of this, it is not surprising that portfolio transactions increased disproportionately by 25% compared to the previous year. As well as the top 10 transactions, a further 17 individual and portfolio deals with a volume of 200 million or more apiece have been completed this year to date. An increased number of deals transacted by institutional investors from the Asian region was observed in the first six months, but this trend did not continue into the third quarter. However, this group of buyers is still interested in the German market. We expect to see further deals above 100 million by the year-end. Investment Market Overview 3 rd quarter

4 Transaction Volume Commercial Real Estate 2016 Q Q3 Transaction Volume Commercial Real Estate 2016 Q Q3 Transaction Volume in million * 0 above 0 to 20 above 20 to 150 above 150 to 300 above 300 SCHLESWIG-HOLSTEIN Hamburg MECKLENBURG-WEST POMERANIA JLL Research 2017 BREMEN Bremen LOWER SAXONY Berlin NORTH RHINE-WESTPHALIA Hanover SAXONY-ANHALT BRANDENBURG Essen Düsseldorf Dortmund Leipzig SAXONY Dresden Cologne HESSE THURINGIA RHINELAND-PALATINATE Wiesbaden Frankfurt / Main SAARLAND Mannheim Nuremberg Karlsruhe Stuttgart BADEN-WURTTEMBERG BAVARIA Augsburg Munich km * aggregated in 40 x 40 km grids Investment Market Overview 3 rd quarter

5 Purchases of foreign investors Slight increase in risk with regard to geographic focus Between January and end-september, the seven major investment strongholds Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart accounted for about 20.4 billion on aggregate. This represents an increase of 19% compared to the previous year. It also further consolidates a trend that was evident in the first half of the year: investors are also increasingly considering locations outside the metropolitan areas. The transaction volume outside the Big 7 reached 18.2 billion and was only around 2 billion below the volume recorded in the established markets. The increase in the volume over a 12-month period was also at a similar rate of just below 19%. However, the disparities between the different asset classes remain the same: as before, almost 70% of office transactions (based on the volume) took place in the Big 7. Berlin remains the undisputed investment capital The total investment volume in Berlin increased by as much as 74% to 5.9 billion compared to the previous year. In the third quarter alone, four transactions with a volume of 200 million each were registered in the German capital. We don t often see that in one city within a quarter. Munich was in second place with 4.1 billion (+25%), followed by Frankfurt am Main with 3.3 billion. The banking metropolis currently presents a mixed picture. A strong performance in the lettings market contrasts with an investment market that has registered a year-on-year decline of 7%. However, the outlook for the near term remains positive. Numerous investors expect events relating to Brexit to have a positive influence on investments in Germany and particularly in Frankfurt. Apart from Frankfurt, Hamburg also experienced a significant decline in the transaction volume (-27%). Bigticket transactions have so far been absent from this market, with the largest transaction in the recent quarter involving the sale of the Kaiser-Galerie for about 170 million. Retail property regains second place There was also little change in the popularity ratings of different asset classes in the third quarter. Office property remained in first position and also further increased its share compared to the first half of the year. Around 17.3 billion was invested in this asset class (45%). Retail property, which maintained its market share at a reasonably stable level (19%), was able to reclaim second place from logistics property. The underlying trend of significantly higher investor demand for logistics space remains in force, as also reflected by the development of yields. At the same time, the mistrust in the sustainability of bricks and mortar retailers does not (yet) appear to be very pronounced; purchase opportunities that arise, although very few, are exploited. The transaction volume for retirement and nursing homes has been rising steadily, and accounts at least for around a billion. Yields start moving in earnest again Following a brief pause in the second quarter, the prime yields fell again in the three months to end-september. It is difficult to predict whether yields have now reached a plateau. However, we have noticed increasingly stronger expectations that rental prices will rise, particularly for office properties. Given the very robust economy and the expansion plans of many companies, the very positive overall outlook of the consumer markets is improving further, with positive consequences for price development. The average prime yield for office properties in all seven strongholds stood at 3.39% at the end of the third quarter and was a further eight basis points below the value recorded for the second quarter. By the end of the year, we expect to see a further decline to 3.24%. In Berlin, it s possible that yields Investment Market Overview 3 rd quarter

6 Impact of change in Rents and Yields on Office Capital Value Growth Aggregated Numbers for Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart without combinatory effects Transaction volume Big 7 ( mn) Q Q % Berlin 3,370 5,880 74% Düsseldorf 1,420 1,965 38% Frankfurt/M 3,590 3,330-7% Hamburg 3,215 2,340-27% Cologne 1,250 1,670 34% Munich 3,310 4,140 25% Stuttgart 1,000 1,085 9% Total 17,155 20,410 19% could fall below another key threshold: for the first time, a 2 could come before the decimal place in a German office property stronghold. Combined with the expected rental price growth, a double-digit percentage increase in the capital value could again be achieved in 2017 for the third year in succession. As already anticipated at the half-year point, the yield curve for logistics properties is also sloping sharply downward and has now reached an average of 4.70%. By the end of the year, we expect to see a further decline by around 20 basis points to an estimated 4.50% on average. There is notable discrepancy between supply and demand for commercial properties in city centres. As a result, there was again a need for a downward adjustment in yields here. The average prime yield for the Big 7 is now only 2.96%, with a slight downward tendency in the coming three months. On the other hand, net initial yields for Transaction volume Germany ( mn) Q Q % Single assets 23,000 26,700 16% Portfolios 9,500 11,900 25% Total 32,500 38,600 19% Transaction Volume Germany by Type of Use * Hotels, Land, Special Properties Investment Market Overview 3 rd quarter

7 Prime yields in 1a-locations (aggregated net initial yield in Big 7 in %) Q Q Q Q Q Office Retail: Shopping center Retail: Warehousing parks Retail: Warehousing solus units Retail: High street Warehousing/Logistics Office prime yields in % Q Q Q Q Q Berlin Düsseldorf Frankfurt/M Hamburg Cologne Munich Region Stuttgart Transaction Volume by Vendor and Purchaser Type ( mn) Investment Market Overview 3 rd quarter

8 individual specialist retailers and for shopping centres are stable at 5.40% and 4.00% respectively. With regard to retail parks, prime yields fell by a further 20 basis points to 4.70% due to strong investor interest. We also expect to see a further slight compression here by 10 basis points before the end of the year. Commercially-traded residential property market remains stable at a high level In the first nine months of 2017, the residential investment market* remained stable at a high level. With 4.8 billion, almost 45% of the total investment volume was generated in the third quarter. The total transaction volume for residential property and portfolios totalled 10.9 billion (involving 95,400 residential units) in the nine months from January to the end of September. This corresponds to annual growth of 40% for 2017 and the result is in line with the 5-year average. The volume for the first nine months of 2017 is 30% above the 10-year average for the first three quarters. The market is also likely to gain momentum as it approaches the end of the year, which could lead to a total result of around EUR 16 to 17 billion. In particular, smaller portfolios and project developments are major drivers in the market. The time of mega-deals is now over, with just three portfolios comprising more than 2,500 properties changing hands in the first nine months of 2017; this is significantly lower than the more than 20 portfolios of this size concluded in 2015 and six in Over the past 12 months, the average transaction size has increased by 30%, from 249 to 320 residential units, but compared to the average of the past five years, portfolios which are 40% smaller have changed hands so far in The largest of these portfolios, 4,500 apartments in the Ruhr region, was purchased by the asset manager Velero Partners, which was looking to significantly expand its portfolio of value-added properties with rental upside potential. Deutsche Wohnen AG remained faithful to its current strategy Residential Investment Market Ø-Transaction Volume : 15.8 bn Investment Market Overview 3 rd quarter

9 of focusing on certain risk classes and regions, and continued to strengthen its Berlin focus by acquiring approx. 4,200 residential and commercial units for 655 million. Another trend being pursued is the acquisition of project developments and intrinsic forward deals. While most project development transactions to date have involved German special funds with capital from long-term investors from pension funds, municipal housing companies have also emerged as active buyers. For instance, three Berlin housing companies acquired a complete new residential district and the Frankfurt-based Nassauische Heimstätte corporate group purchased a mixed-use neighbourhood. Municipal housing companies are trying to fulfil their political mandate to provide affordable housing. As this goal can no longer be achieved by owner-occupier developments or acquisitions of existing properties due to the lack of capacity and supply, focus has shifted to the acquisition of project developments. This is also being supported by municipal models for the development of building land, which require the provision of a proportion of affordable rental apartments in new developments. Municipal housing companies then act as buyers. Finally, other trends are emerging, such as the increasing interest in mixed-use neighbourhoods and risk diversification across several asset classes. This includes the construction of residential buildings with hotel, retail and office units. Berlin s strength as a residential market has grown once again, with 95% of the previous year s result already achieved by the end of the third quarter. At 2.7 billion, a quarter of the total transaction volume in the commercial residential segment was generated in the federal capital. Last year s transaction volume of 630 million has already been exceeded in second-placed Düsseldorf (2016: 380 million) and in third-placed Hamburg, 560 million has been invested so far. Following a brief orientation phase in the aftermath of acquisitions of other housing companies, large public companies and residential REITs are once again the buyer class with the largest net increase in assets. Almost 2.7 billion (net) has been invested in German residential property, already over 60% more than in German special funds followed at a considerable distance behind, accumulating 1.6 billion worth of residential property assets through the acquisition of project developments. Also on the buy-side is the public sector, which has increased its net assets by over 480 million. Conversely, professional asset / fund managers sold more, making net disinvestments of around 500 million. At 2.7 billion, foreign investors accounted for a quarter of direct residential property investments, similar to their market share in Most international capital comes from investors from Israel ( 1.4 billion), followed by France ( 390 million) and the UK ( 190 million) at a considerable distance behind. Without doubt, international investor interest in Germany s residential property remains high. However, following the recent elections, it remains unclear which strategy the new coalition government will follow in respect of the real estate sector. Keywords in this context are the different positions of the parties on the rental price cap, the disparate regulations concerning the approval of new construction projects and the subsidisation of newbuilds, as well as questions regarding social housing construction. The very good networking of German institutional investors with project developers and sellers is a very different kind of obstacle for an international investor clientele in terms of market entry. Investment Market Overview 3 rd quarter

10 Contacts Kontakt Willi Weis Head of Industrial Investment Name Germany, Team Leader Industrial Title/Function Investment Munich City Frankfurt tel (0) (0) Sandra Ludwig Head of Retail Investment Germany Hamburg Marcus Lütgering Head of Office Investment Germany Munich +49 (0) Dr. Konstantin Kortmann Head of Residential Investment Germany Frankfurt +49 (0) Helge Scheunemann Head of Research Germany Hamburg +49 (0) jll.de Alle Informationen rund um JLL und unsere Dienstleistungen jll.de/research Alle Research-Berichte zu aktuellen Marktzahlen und Spezialthemen jll.de/immo Gewerbeimmobilienangebote zur Miete und zum Kauf deutschlandweit jll.de Information regarding JLL and our services jll.de/research All research reports on current market figures and special topics jll.de/immo Commercial real estate properties for sale or to let throughout Germany Copyright JONES LANG LASALLE SE, Dieser Bericht wurde mit größtmöglicher Sorgfalt erstellt und basiert auf Informationen aus Quellen, die wir für zuverlässig erachten, aber für deren Genauigkeit, Vollständigkeit und Richtigkeit wir keine Haftung übernehmen. Die enthaltenen Meinungen stellen unsere Einschätzung zum Zeitpunkt der Erstellung dieses Berichtes dar und können sich ohne Vorankündigung ändern. Historische Entwicklungen sind kein Indiz für zukünftige Ergebnisse. Dieser Bericht ist nicht für den Vertrieb oder die Empfehlung zum Kauf oder Verkauf einer bestimmten Finanzanlage bestimmt. Die Copyright in diesem JONES Bericht LANG zum Ausdruck LASALLE gebrachten SE, Meinungen und Empfehlungen berücksichtigen nicht individuelle Kundensituationen, -ziele oder -bedürfnisse und sind nicht für die Empfehlung einzelner Wertpapiere, No part of this publication Finanzanlagen may oder be reproduced Strategien or einzelner transmitted Kunden in any bestimmt. form or by any Der means Empfänger without dieses prior written Berichtes consent muss of seine Jones eigenen Lang LaSalle. unabhängigen It is based Entscheidungen on material that we hinsichtlich believe to be einzelner reliable. Wertpapiere Whilst every effort oder Finanzanlagen has been made to treffen. ensure Jones its accuracy, Lang LaSalle we cannot übernimmt offer any keine warranty Haftung that it für contains direkte no oder factual indirekte errors. We Schäden, would like die to aus be Ungenauigkeiten, told of any such errors Unvollständigkeiten in order to correct oder them. Fehlern in diesem Bericht entstehen.