Retail investment market is heading for record year as transaction volume reaches over € 15.1bn

Demand for retail property in Germany continued unabated in Q3 2015. The retail investment transaction volume of the first nine months of the year totalled over € 15.1bn and was twice as high as the volume recorded in the same period of 2014 (+ 116% y-o-y). “The retail investment market currently enjoys strong demand from investors across almost all trading segments”, comments Jörg Krechky, Director and Head of Retail Investment at Savills Germany. “Whether it be DIY markets with short leases or older shopping centres in East Germany – each sector is attracting plenty of investor interest.”

Prime high-street buildings attracted the majority of investor interest, accounting for approximately 36% of the total retail investment transaction volume the first three quarters of 2015. Shopping centres followed in second place with a 25% share, department stores represented circa 18%. € 7 bn (47%) of the total volume was attributable to portfolio transactions. The majority of the investment volume is attributable to cross border activity, which accounted for a combined share of 61% in the transaction volume, with The USA (20%), France (14%) and Canada (11%) investing the most heavily.

“As typical core properties become increasingly scarce on the retail investment market, some investors are shifting towards ‘plan B’ strategies, whereby they invest in a secondary city in order to gain a dominant position in secondary market,” observes Krechy. “When analysing potential investment destinations, most investors focus on the demographic forecasts.” At the same time the trend towards retail parks and specialty markets continues. In fact, the transaction volume of retail parks rose by over two thirds year-on-year. As the impact of online retailing remain unclear, may investors prefer assets with a greater element of food retail, as this is considered more resistant to online trading”, says Krechky.

Even if typical core asset transactions are rare at the moment there is sufficient liquidity at the other end of the market with numerous properties successfully sold this year to date after a long marketing period”, states Andreas Wende, COO and Head of Investment Germany at Savills. “The successful sale of such transactions is not only due to high levels of pressure felt by the buyers but also the will of certain investors to refurbish and revitalise existing properties”, adds Krechky.

Given the sustained strong interest of both domestic and foreign investors the retail yields were further constrained throughout Q3. The net initial yields for prime high-street buildings dropped by another 10 basis points year-on-year to 3.7%. The net initial yields for shopping centres likewise dropped by 10 basis points and stood at 4.2% at the end of September. Retail parks even saw a decrease of 20 basis points to 5.2%. “While we expect a marginal further yield compression for shopping centres,  we assume that those for retail parks will drop further prior to the end of the year”, forecasts Matthias Pink, Director and Head of Research Germany at Savills.“As both more and more capital and new players are looking for investment opportunities in German retail property it can further be expected that the boom on the retail investment market will continue over the coming months.”

Retail investment market Germany Q1 - Q3 2015 (JPG)