According to Savills, international investors seeking value are targeting Germany and have accounted for 40% of total transactions in H110, compared to 15% during H109.

According to Savills, international investors seeking value are targeting Germany and have accounted for 40% of total transactions in H110, compared to 15% during H109. Total transaction levels during H110 increased by 148% compared to H109 and the firm predicts that commercial real estate investment in Germany will total €16bn by year end 2010 compared to €11.2bn in 2009, largely driven by foreign investment.

The international real estate advisor states that buyers from UK, Netherlands and France in particular are targeting this market alongside domestic investors including open-ended funds, closed-ended funds and listed property companies as well as private equity investors who have re-entered the market. Savills suggests that investors are motivated by rental growth forecasts as well as a declining unemployment levels (7.6% in August 10 compared to 8% in September 2009). In addition, Germany has seen five consecutive quarters of GDP growth with an all time high since reunification of 2.2% in Q210.

Giles Wilcox, head of European cross border investment at Savills, says: “Investors have been cautious to date and in the main focused on London and Paris but as the economy recovers, the top five cities in Germany are becoming a prime target alongside these locations. The occupational market has remained relatively steady compared to the volatility that has provided opportunities in London and Paris, but rising rental growth forecasts in Germany as well as a strengthening economy have given international investors motivation to focus on the returns to be made in this market.”

Savills data states retail has become the dominant investment class with over €4.3 billion in H1 2010 whilst offices ranked second with more than €2.9 billion. The consumer climate has improved over the past months with declining unemployment figures supporting the high levels of demand for shopping centre and retail warehouse stock. In terms of office demand, Munich and Berlin have seen significant deals for example the acquisition of Sony Center for €572m and the purchase of a Munich commercial park accommodating Siemens for more than €360m. In addition, Dusseldorf, which out of the top five cities has the most new development schemes at 300,000 sq m, will see an increase of 4% in stock between 2010 and 2012 and rental growth of 2.8% in 2011. Savills predicts rental growth for 2011 to be 3.4% in Munich, 2.9% in Frankfurt, 2.5% in Berlin and 2.2% in Hamburg based on the forecasted drop of development completions. However, office properties account for one third of investment in H110, compared to 40% on average over the past five years, and this Savills says is due to a lack of high-quality newly built stock hence retail now accounts for 40% total investment.

Lars-Oliver Breuer, head of investment at Savills Germany, adds: “Foreign investors have returned to Germany investing almost €4 billion in the first half of the year. As well as portfolio deals, interest in larger property volumes has risen with fifteen transactions above the €100 million registered in H1 in the first half the year – we have seen some interest from Asian parties for deals of this scale.”

Savills anticipates interest will continue in Germany into 2011 as released development stock declines to 0.9m sq m from 1.2m sq m in 2010 and owners place more property on the market. Simon Dunne, director of Savills Capital Advisors, comments: “Germany attracted a significant amount of CMBS lending, particularly in the latter stages of the real estate lending cycle. We see CMBS market participants now preparing to work through these loans. We expect to see change and, as a result, opportunities arising in the German CMBS arena."

Editors Notes:

Germany’s top five office markets comprise Frankfurt, Munich, Berlin, Hamburg and Dusseldorf.