According to Savills, irrespective of 'Grexit’, 'Brexit’ and the interest rate leap, the boom on the German investment market for commercial real estate did not slow down in Q2 2015 but accelerated even further.
According to Savills, irrespective of 'Grexit’, 'Brexit’ and the interest rate leap, the boom on the German investment market for commercial real estate did not slow down in Q2 2015 but accelerated even further. During April and June over € 14 bn was invested into commercial properties in Germany (+ 96% y o y) which puts the half-year result to € 23.8 bn (+ 33% y-o-y). The 12-month-volume rose by 18% to € 46.8 bn compared to Q1. The previous record high of just below € 55 bn seen in 2007 may well be hit this year if the current dynamics prevail. “What we are currently seeing on the German commercial investment market is to be called a super cycle, and the first half of the year can only have been a temporary peak”, says Andreas Wende, COO and Head of Investment Germany at Savills. “The long-standing low interest rate environment directs more and more money into the real estate asset class. At the same time the price surges on the bond markets over the past weeks underpin that the withdrawal from the global low interest rate policies is likely to come along with an increasing volatility. This may cause investors to raise their real estate share in their portfolios even further”, outlines Matthias Pink, Director and Head of Research Germany at Savills.
Throughout the first half of 2015 over € 9.5 bn was invested into retail properties, relegating offices to second place. The latter totalled € 8.7 bn of transactions, followed by warehouse/industrial properties at € 1.6 bn and hotels at € 1.1 bn.
Almost 50 transactions took place in the size category beyond € 100 m and the portfolio transactions volume added up to € 9.0 bn. The number of transactions over € 100 m increased by more than half year-on-year while the portfolio transactions volume rose from an above-average level by almost a quarter. “The high liquidity in the market coupled with the strong competition for attractive products made the appetite for size increase”, says Wende. Particularly foreign players raised their commitment both generally and in the large-scale segment. Their share in the total transaction volume was 61%.
Also in Q2 the sustained demand pressure resulted in a slight yield compression. The prime office yields moved in by 10 bps on average across the top seven markets and stood at an averaged 4.2% at the end of June. “Although Munich is still the only market showing net initial yields below 4% further markets are likely to hit this mark prior to the end of the year”, predicts Matthias Pink. In fact, even though another few core assets are on the market or just about to be marketed the excess demand in this segment persists. At the same time the high price levels provide a good opportunity to many property owners to dispose of assets which no longer match their portfolio criteria so that the supply beyond the core segment increases. As likewise the demand increasingly broadens towards non-core assets the transaction volume will most likely exceed the € 50 bn mark by the end of the year and possibly match the record high of 2007.