Activity in the German commercial property investment market stabilised in the second quarter of the year but remained subdued, according to Savills. Both the number of transactions and the transaction volume were marginally lower than in the first quarter.

The transaction volume in the first half of 2023 totalled approximately €9.6bn. This was around two thirds lower than in the corresponding period last year and the weakest investment volume in the first half year since 2012.

In view of the current transaction pipeline, Savills does not envisage an increase in completions during the summer. However, the number of deals could increase significantly again in the autumn. Nevertheless, Savills has revised its projected investment volumes for Germany for 2023 downwards from approx. €30bn to less than €30bn.

Marcus Lemli, CEO Germany and Head of Investment Europe at Savills, says: “Transaction activity has stabilised at a low level in recent months. However, what the figures do not show is that the state of shock from the winter has given way to acceptance among many that the market environment has changed fundamentally for the foreseeable future.”

Activity in the high-value segment has contracted particularly sharply.
Matthias Pink, Head of Research at Savills Germany, says: “Up to a volume of around €50m, the market is relatively liquid. Above this, there have been few transactions of late. Transactions above €100m, which were a regular occurrence up to the beginning of last year, are now scarcely seen.”

The average sale price of a single property during the first half of 2023 stood at approx. €19.6m. This is a quarter lower than the figure for the two previous years and marginally below the 10-year average (approx. €19.9m).

“For equity-rich and long-term investors in particular, the environment created by higher interest rates and lower prices is attractive. The former reduces competition while the latter offers the opportunity of capital growth. In the short term, capital values could fall further. However, prime yields have been softening at a slower pace in recent months,” adds Lemli.

According to Savills, prime yields across all sectors rose by an average of around 20 basis points and now range from approx. 4% (offices, high-street properties, logistics) to approx. 5.5% (shopping centres).

“The fog that has surrounded pricing since early last year has not disappeared, but it has lifted significantly. In most sectors, there have been benchmark transactions that can be used for orientation. This could restore liquidity in the market since the low transparency surrounding pricing has prevented or thwarted many transactions,” says Pink.

In recent weeks, Savills has observed a rising number of sale processes commencing or being prepared. “Willingness to sell remains subdued. However, owners are at least selectively targeting disposals again. Some are seeking to build up liquidity for forthcoming refinancing, while others are aiming to dispose of properties from their portfolios that are not ESG-compliant. Overall, we expect supply to increase over the remainder of the year and, since there is certainly capital available for acquisitions, the transaction trough could soon be behind us,” says Lemli.

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