Market in Minutes Germany commercial investment markets Q1 2016

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1 Savills World Research Investment Market in Minutes commercial investment markets The market at a glance falls by almost 14% as willingness to sell declines The commercial investment market recorded a transaction volume of more than 8.3bn in the first quarter of the year. This represents a decrease of around 14% compared to the corresponding period last year. While retail property witnessed a particularly strong decline in the transaction volume (-4 compared with 15), healthcare property stood out with an increase in volume of more than 5. The general decline in transaction volumes is not a consequence of falling demand in our estimation but rather a result of scarce supply. This, in turn, is a consequence of the further reduction in the ECB s main refinancing rate, which makes it even more difficult for investors to reinvest sales proceeds profitably. However, since there are numerous individual properties and portfolios on the market or about to be brought to the market, we expect higher transaction volumes during the coming quarters. The ECB s further reduction in its main refinancing rate and the very slow pace of interest rate hikes by the US central bank are additional reasons why there will be further capital flows into real estate as an asset class. At the same time, the sustained low interest rate environment reduces the incentive to sell for property owners. Consequently, the supply shortage is becoming more acute and the transaction volume this year is unlikely to match last year s level. We expect a volume of approximately 50bn. savills.de/research 01

2 Commercial investment market 12-month-volume -2% against previous quarter Forecast : approx. 50bn TABLE 1 Key investment market figures ( m) Share of domestic investors prime net initial yield High Street prime net initial yield 16 against against against against Berlin ,255-11% 39% -16% 3.9% +/-0bps 3.5% -10bps against -15 Düsseldorf % 2,993 +6% 34% +9% 4.1% +/-0bps 3.8% +/-0bps Frankfurt % 5,300-6% 53% +4% 4. +/-0bps 3.5% +/-0bps Hamburg 850-6% 4,158-1% 47% bps 3.7% +/-0bps Cologne % 2,235 +1% 4-6% 4.2% -10bps 3.8% -20bps Munich 870-2% 5,858 +/- 48% +2% 3.7% +/-0bps 3.5% +/-0bps Stuttgart % 1,850 +7% 63% -7% 4.2% -10bps 3.9% -10bps * 8,301-14% 56,048-2% 5 +/ bps 3.7% -6bps / * prime yields = average of Top 7 markets GRAPH 1 Regional distribution of rolling transaction volume of up to 10m up to 100m up to 1bn more than 1bn / map source: BKG savills.de/research 02

3 Commercial investment market Continuing slight yield compression foreseeable Long-term buyers still dominate GRAPH / * forecast 5.22 transaction volume, rolling (right axis) * GRAPH 3 by sector GRAPH 4 by type of investor GRAPH 5 Prime yields** Purchases, Net investments, Ø asset manager Sales, Net investments, % 7% 6% 5% 4% 3% 2% 1% Prime High Street Logistics * / * forecast / ** average of Top 7 markets TABLE 2 The largest transactions in at a glance* Property / Portfolio Type of use Location(s) Volume Buyer Vendor BayWa Hochhaus Munich approx. 280m WealthCap BayWa AG / Competo Capital Partners Loop5 (91% share) Weiterstadt undisclosed Deutsche Asset & Wealth Management Sonae Sierra SGPS / Foncière Euris Forum Hanau Hanau undisclosed Hamburg Trust HBB Archer Portfolio across undisclosed Portfolio (9 properties) across approx. 150m Apollo Management Advisors Rockspring Property Investment Managers Goldman Sachs unknown investor / * only published transactions are shown savills.de/research 03

4 Commercial portfolio investment market Portfolio share of total volume falls to 21% Strong decline of retail transactions TABLE 3 Key investment market figures ( m) Number of transactions Ø Deal size ( m) 16 against against against against % 5,345 +1% % 127-9% % 8,495-13% 59-5% 144-9% Industrial/Logistics % 1,687 +4% 25-7% % 467-1% 4,373 +/ % 77-7% Total 1,711-42% 19,900-6% % 109-7% GRAPH transaction volume, rolling (right axis) GRAPH 7 by sector * / * forecast GRAPH 8 by origin of buyer GRAPH 9 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, savills.de/research 04

5 Commercial investment market Berlin Foreign investors with continued strong interest Availability of product should increase GRAPH transaction volume, rolling (right axis) GRAPH 11 by sector GRAPH 12 by origin of buyer GRAPH 13 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Berlin market in minutes Selling is becoming increasingly attractive for many long-term holders The boom in Berlin s commercial investment market lost some momentum in the first quarter of (transaction volume: -6 compared to 15). However, we expect a pleasing level of investment activity over the coming quarters. Many owners that bought early in the market cycle may take advantage of the current record low yields to dispose of their properties. Indeed, more and more properties purchased significantly later are also being sold again after a relatively short holding period. All of this should significantly increase the availability of product. Demand from abroad remains particularly high. International purchasers accounted for around 5 of investment during the first quarter. Fundamentally, purchasers are becoming increasingly flexible in terms of purchase price levels, risk tolerance and speed, which is also essential to finding opportunities in Berlin. In the current stage of the market, buying properties with short unexpired lease terms appears particularly attractive since such assets promise enormous increases in income returns. However, competition among bidders is fierce. savills.de/research 05

6 Commercial investment market Düsseldorf of more than 300m Decreasing year-end result expected GRAPH 14 GRAPH 15 by sector transaction volume, rolling (right axis) GRAPH 16 by origin of buyer GRAPH 17 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Düsseldorf market in minutes Strong start to the year and a renaissance for B-locations Düsseldorf s commercial investment market started the new year with a high transaction volume. Commercial properties changed hands for more than 300m during the first quarter, which was more than double the volume in the corresponding period last year. However, since significantly fewer large transactions are expected this year compared with, the investment volume for is expected to show a moderate decrease. While core properties remain high on the agenda of most investors, many owners currently have no intention of selling such assets. Thus, the softening of investment profiles in favour of core-plus property, which was evident last year, is likely to persist over the coming months. In view of the stronger demand for properties outside of the core segment, we expect that Düsseldorf s B-locations will also be further scrutinised for investment opportunities. savills.de/research 06

7 Commercial investment market Frankfurt Absence of large deals results in decreasing volume Continued strong demand GRAPH transaction volume, rolling (right axis) GRAPH 19 by sector GRAPH 20 by origin of buyer GRAPH 21 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Frankfurt market in minutes Market dominated by small transactions but large product on the horizon The commercial investment market in Frankfurt was characterised by relatively small transactions during the first three months of the year. The average transaction volume stood at around only 24m compared to 46m over the last five years. However, in view of the full development pipeline in the high-rise segment, large deals will be seen again going forward. In addition to the development pipeline, the transaction pipeline is also busy. Preparations were underway during the first quarter to bring numerous assets to the market, which should result in significantly greater activity on the supply side over the coming quarters. Institutional holders in particular are currently reviewing their portfolios and will increasingly dispose of properties that no longer conform to their strategies. At the same time, there is high demand for value-add product. Properties with expiring leases and potential for repositioning are particular targets. savills.de/research 07

8 Commercial investment market Hamburg Market almost as strong as at last year European investors dominate the market GRAPH 22 GRAPH 23 by sector transaction volume, rolling (right axis) GRAPH 24 by origin of buyer GRAPH 25 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Hamburg market in minutes Transaction activity increasing outside of the city centre Owing to its diversified sector mix and the relatively low volatility of its lettings market, Hamburg is a particularly lowrisk investment location. However, despite the high demand from investors, owners of sought-after core properties in the city centre are only prepared to sell in exceptional cases in view of the lack of investment alternatives. Investment activity is, therefore, also likely to be focused in locations outside of the city centre over the coming months. One location with favourable development prospects is the axis between the port and the HafenCity submarket. This area is expected to attract increasing interest from property investors in the near future. In view of owners reluctance to sell in the core segment, is likely to be primarily characterised by changes of ownership in the core-plus segment. Value-add product will also remain in very high demand. However, given the lack of supply of such property, we expect further yield compression. savills.de/research 08

9 Commercial investment market Cologne Slight increase against 15 Market driven by domestic investors GRAPH transaction volume, rolling (right axis) 2.4 GRAPH 27 by sector GRAPH 28 by origin of buyer GRAPH 29 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Cologne market in minutes Buoyant interest from investors but difficult to enter the market The Cologne market is characterised by a massive shortage of attractive office space and speculative developments are scarce. Consequently, the market environment for owners of office property in particular is highly favourable. Many investors are, therefore, interested in acquiring property in Cologne. The fragmented development structure and numerous (private) owners in the centre of Cologne impedes new developments since a number of individual properties must first be secured. This results in long project lead times and favours locally-based investors. We assume, therefore, that the market will retain its regional character in, with international purchasers often missing out on opportunities. The medium to long-term supply shortage in the city centre means that it is essential to develop new city districts. With few plots remaining in Deutzer Feld, the sites on the Cologne Ring could increasingly come into focus going forward. savills.de/research 09

10 Commercial investment market Munich Sale of BayWa Tower leads to strong first quarter Value-add properties in strong demand GRAPH transaction volume, rolling (right axis) GRAPH 31 by sector GRAPH 32 by origin of buyer GRAPH 33 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Munich market in minutes Rising investment activity in the outskirts Munich remains THE safe haven in and demand from investors seeking investment opportunities in precisely such safe havens is correspondingly high. Demand is likely to persist in and, in view of the supply shortage within the city boundaries, is also expected to increasingly shift to the surrounding areas. Locations such as Moosach, Ismaning and Ottobrunn are enjoying increasing demand. Munich is not only at the top of the agenda for core investors but also for value-add investors when it comes to the most coveted investment locations. The positive letting prospects promise value-add potential through upgrading properties. The transaction volume in 16 was slightly lower than in the corresponding period last year (-2% compared with 15). The sale of the BayWa tower was largely responsible for ensuring that the decrease was not greater. Nevertheless, Munich registered the highest transaction volume among the top seven markets in the first quarter. savills.de/research 10

11 Commercial investment market Stuttgart Quarterly volume grows by 55% year-on-year Rally is expected to go on GRAPH transaction volume, rolling (right axis) 7.0 GRAPH 35 by sector GRAPH 36 by origin of buyer GRAPH 37 by type of investor Purchases, Net investments, Ø asset manager Sales, Net investments, Stuttgart market in minutes A diverse and increasingly international investor landscape The commercial investment market in Stuttgart is attracting increasingly strong interest from foreign investors. However, many regional investors, including numerous private investors, remain engaged. Consequently, the investor landscape is likely to become increasingly diverse and the competition among bidders even more intense. Going forward, Stuttgart s attractiveness will also be a product of the somewhat higher yields compared with the other top seven markets. The Stuttgart metropolitan region can also compete with most other markets in terms of fundamentals, such as purchasing power and employment. We expect this situation to be increasingly priced in over the course of the year, resulting in further moderate yield compression. However, it is also the sound fundamentals and stable occupier market that are preventing many owners of core properties from selling. We therefore expect more and more prospective purchasers to extend their investment profiles to Stuttgart s B-locations. savills.de/research 11

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