Despite the war in Ukraine, the ongoing COVID-19 pandemic and recent interest rate hikes, in Q1 2022, according to Savills Germany registered its second highest commercial real estate investment volume for an opening quarter on record. The transaction volume of €19.6bn is almost double the amount in the corresponding quarter last year.

The extremely high transaction volume is also a result of large company mergers and acquisitions. There were four such transactions, by far the largest being the majority interest taken in Alstria by Brookfield. These transactions had a combined volume of almost €7bn, 35% of the entire transaction volume, with both of these figures being new records.

Marcus Lemli, CEO Germany and Head of Investment Europe at Savills, says: “The fact that the commercial property transaction volume remains extremely high demonstrates the strong confidence of investors in Germany despite and, to some extent, also because of the many prevailing uncertainties in the capital markets.

“At the same time, the high investment volume somewhat conceals the fact that investors have become more reticent since the outbreak of the conflict in Ukraine. While Germany will remain among the preferred safe havens for most investors, the outlook has nevertheless become more uncertain in recent weeks, which could curb investment activity in the coming months.”

The reversal in interest rate policy suggests an end to further prime yield compression in two respects. Firstly, the risk premium on real estate compared with bonds will shrink and, secondly, financing costs will increase. Since the start of the year alone, the yield on 10-year German government bonds has risen by 70 basis points, which could have a dampening effect on prices in the real estate markets in the medium term. The rising financing costs will have a more indirect impact but, in view of the high equity ratio, will have a greater impact on the non-core segment than core markets.

Matthias Pink, Head of Research Germany at Savills, adds: “Once again, we find ourselves in a situation characterised by extreme uncertainty. While the fundamental conditions in the German commercial property markets remain sound, the Ukraine conflict has already had significant negative effects on the German economy and, the longer the conflict persists, the more noticeable the consequences will be in the lettings markets.

“To what extent this causes investors to postpone their purchasing decisions for the time being will be seen over the coming months. However, their focus will now shift to those properties that promise stable income despite all the uncertainties in the market.”

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