Savills research shows that the German commercial real estate investment market has continued its strong performance seen in the first half of the year with €7.8 billion of transactions taking place between July and September. This takes the total transaction volume for the first three quarters of 2014 to €25.4 billion, representing a 31% year-on-year increase, according to the international real estate advisor.

Andreas Wende, head of investment at Savills Germany, comments: “German commercial real estate currently seems to have a built-in sales guarantee. Investors are interested in properties of any type of use and in any region of the country.”

Savills notes that the commercial real estate transaction volume not only increased across Germany’s six top markets (Berlin, Hamburg, Frankfurt, Düsseldorf, Cologne and Munich) by 13% compared to 2013, to approximately €11.2 billion in Q3 14, but also outside these major cities with periphery markets showing a 51% increase to €14.2billion.

When analysing specific sectors, Savills found that each market saw a year-on-year increase with the most pronounced recorded in the hotels and warehouse / industrial sectors, which showed a growth of 104% and 88% respectively in Q3 14 compared to Q3 13.

Matthias Pink, in the research team at Savills Germany, says: “This clear rise in special-purpose real estate and the wider spread of geographical investments demonstrates  that Germany’s status as an attractive location plays a stronger role in investment decisions and it is not just traditional core properties that are in demand.”

This view is supported by the current activities in the portfolio sector where over €9.2 billion has been invested into commercial real estate portfolios to date in 2014, resulting in it seeing a considerably stronger increase than the overall market at 131 %.

In terms of buyer nationality, Savills research finds that the strong transaction levels in the German investment market were driven by overseas purchasers who accounted for just over half of the total investment volume and three quarters of the transaction volume for portfolios. The largest groups of foreign buyers were US investors (approx. €2.9 billion), followed by UK (€2.3 billion) and French buyers (€1.6 billion). Asia Pacific investors also showed a prominent commitment with buyers from Singapore having invested approximately €350 million, followed by Australian investors at over €280 million and South Koreans at circa €220 million. In total buyers from Asia Pacific made direct investments worth over €1.4 billion, which is nine times the amount of the same period in 2013.

The clear appetite for assets in Germany across all risk classes is not only demonstrated by the wide distribution of the transaction volume to locations and types of use but also by the type of investor with the traditional risk-averse insurance firms on one side and the more opportunistic private equity funds on the other. Both purchased real estate worth just below €1.6 billion net even though the latter moved significantly more money (purchase volume approximately €3.1 billion, sales volume approximately, €1.5 billion) than the insurance companies (circa €2.1 billion and €0.5 billion respectively). As in  previous years special funds, which purchased German commercial real estate worth over €4.5 billion and sold a total volume of circa €3.2 billion, were the most active group in overall terms.

Although the strong focus on core seen in recent years is no longer evident with value add products in particular attracting strong demand, the price sensitivity in the non-core segment continues to be high. Andreas continues: “Once investors are confronted with deficiencies – be it in terms of occupancy, building quality or location – investors look very carefully at these risk factors and cap prices accordingly.

“Most investors have the following priorities: firstly location, secondly building quality and thirdly occupancy and lease term. In other words, locational disadvantages are sanctioned by the biggest price reduction whereas remaining lease terms will no longer be as highly relevant as they had been in the years immediately after the crisis.”

In consequence the prices in the non-core sector rose marginally in Q3 14 with yields for office buildings in secondary locations of the top 6 markets dropping by some ten to twenty basis points quarter-on-quarter. At the prime end of the scale, yields are already on a record low and only in some instances were further decreases recorded – in the case of industrial and retail properties the prime yields moved in by some 10 basis points each to 6.4% and 4.0% respectively.

Given a number of pending major transactions and the large number of sales processes currently in progress an exceptionally strong turnover can be expected for the final quarter boosting the total transaction volume 2014 at least closely to the €40 billion mark.