Transaction volume rises by almost one third with strong demand for retail portfolios

In Q3 2015 the German investment market for commercial portfolios reached another above-average transaction volume. Over € 3.1 bn were invested into German commercial real estate packages during July and September which is a result clearly below that of the previous quarter (approx. € 6.2 bn) but still considerably above the quarterly average of the past five years of circa € 2.2 bn. Throughout the first nine months of the year over € 12.2 bn were invested into commercial portfolios – a plus of 31% year-on-year. “The high investment pressure and the search of many investors for big tickets attracts more and more capital into the portfolio sector”, observes Karsten Nemecek, Managing Director Corporate Finance – Valuation at Savills Germany. “As the price expectations of vendors and buyers for office portfolios are often unmatched, the activity in the office sector currently still lags slightly behind that for retail portfolios.” Accordingly, over 55% of the portfolio transaction volume were attributable to retail portfolios – after just almost 23% in the same period of 2014. By contrast, the share of office portfolios reduced from 36% to 23%. In total as much as € 6.7 bn were invested into retail portfolios and € 2.8 bn into office packages this year to date.

In addition the investment activity in terms of mixed-used portfolios increased significantly throughout the first nine months of 2015. Not only the number of this type of transactions increased from 16 to 19 year-on-year but also the transacted volume rose significantly by 80%. “The higher transaction volume of mixed portfolios is evidence of the further growing appetite for risk of many investors. Vendors are now accommodating this trend with an adjustment in their portfolios”, reports Matthias Pink, Director and Head of Research Germany at Savills.

The average size of the transacted portfolios likewise grew noticeably and rose by 13% y o y to € 106 m. The increase in the number of transacted portfolios by 16% was even more pronounced. The presence of large-volume mega deals in the retail sector was a vital factor for the commercial portfolio investment market throughout the first nine months of 2015. The three largest transactions of retail packages accounted for circa 35% of the total portfolio transaction volume and included the Kaufhof and Corio takeovers, as well as the acquisition of a high-street buildings portfolio by Deka. “Particularly on the part of foreign investors the demand for German commercial portfolios continues to be strong”, says Marcus Lemli, CEO Germany and Head of European Investment at Savills. “Investors are particularly attracted by the prospect of being able to invest a large sum on one sizable deal.” Over two thirds of the portfolio transaction volume were attributable to foreign investors. Accounting for a share of over 22%, US investors represented the most active group of buyers in the first nine months of the year. Domestic buyers followed in second place at just below 22%, while UK investors ranked third, accounting for 18% activity in the total transaction volume.

With various commercial packages still in the market and expectations rising for upcoming takeovers, we anticipate an end of year surge in activity in the commercial portfolio market. “It therefore remains realistic that the transaction volume may rise to a total of € 18 bn by the end of the year”, forecasts Pink.

Commercial portfolio market Q1 - Q3 2015 (JPG)