Market Report 2011 GerMany - Europe Real Estate

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20 Investment market for office buildings Transaction activities return to an average level The German investment market for commercial property gained noticeable momentum during the previous year. The overall transaction volume in 2010 amounted to just under €20 billion, due not least to the rally at the end of the year and therefore 85% higher than in the recession year of 2009. As a consequence, the total investment volume therefore approached the level of 2005 (€23 billion), the last year before the credit-driven boom of 2006/2007. This trend was supported by the fact that investors are now optimistic again about the prospects of the commercial rental markets, that lending criteria have relaxed slightly compared to the previous year, that fears of currency depreciation as a consequence of inflation persist and that German government bonds lost their appeal as alternative investments for long periods during the previous year due to their low interest rate. Investors backed by equity continue to dominate Against this background, the most active investors over the past year were domestic investors with very good equity, providers of closed-end funds (with a share in the transaction volume of roughly a fifth) and institutional investment funds (16%), but also insurance companies/pension funds (12%) along with private investors (10%). However, the encouraging strength of the economy in 2010 also attracted increasing numbers of foreign investors to Germany again. As a consequence, their share of the transaction volume rose from 14% to 37% compared to 2009, according to BNP Paribas. International investors competed for three quarters of the portfolio transactions, which increased dramatically in 2010 compared to the previous year, from €1.3 billion to €4.2 billion. At the same time, they completed the largest single transactions in the office sector, the purchase of Frankfurt’s OpernTurm for around €580 million (Singapore-based GIC together with JP Morgan) as well the investment during the first half of the year in the Berlin Sony Center for €572 million (National Pension Service of South Korea). The importance of major single transactions increased significantly last year overall, from €1.8 billion in 2009 to €4.6 billion in 2010. Office investments almost exclusively in the seven major markets Retail properties were slightly more popular among investors during the past year than office properties: Whereas retail properties valued at around €7.8 billion (share of transaction volume 40%) changed hands, transactions involving office buildings amounted to €7.2 billion (a share of 37%). The office sector profited from the lightened sentiment of the rental markets, which led to a sharp increase in the number of transactions particularly at the end of the year. Consequently, almost 45% of all office investments only took place during the fourth quarter of 2010. Also noticeable was the fact that office transactions were once again concentrated on the seven locations with the largest office stock. These totalled 88% (previous year 81%) and €6.4 billion (2009: €3 billion) of all office property acquisitions realised in Germany. Thanks to the two major single transactions mentioned above, Frankfurt and Berlin with sales of €1.6 billion and €1.5 billion respectively were significantly ahead Transaction volume in Germany Investment volume in € billion 20 15 10 5 0 2006 2007 2 008 2009 2010 Office Source: BNP Paribas RE Investment volume in € billion Investors in Germany 2010 7% 7% 10% 12% 12% Open-ended and closed-end Private investor funds Insurance/pension funds TOP 7: Transaction volume 3 2 1 0 Office Other Other sectors 10% 42% Immobilien AG Equity Funds Equity Funds Other Source: Calculation by IVG Research based on BNP Paribas RE data. Total transaction volume €19.6 billion. B D F HH K M S Source: BNP Paribas RE and Colliers
of Munich, Dusseldorf and Hamburg (each with €1 billion office investments). They also outperformed the two smaller locations of Cologne and Stuttgart, both of which recorded office building transactions valued at around €265 million. However, based on overall volume of commercial investment, Berlin and Hamburg were the leaders due to additional extensive transactions involving retail properties. In the seven major locations, office properties accounted for 56% of overall investment in commercial property on average, with the latter amounting to a total of €11.5 billion. Slight shift in ownership structure in major locations Ignoring for the moment the fact that foreign players made up a relatively small share of 32% of the overall investment volume in the seven major markets (Germany 37%), the purchaser profile was broadly identical to that at national level. Investors backed by equity also dominated the demand side and tended to increase their property portfolios. In contrast, the builders, project developers as well as equity and real estate funds that were the dominant net investors during the high-price boom years of 2005 to 2008 were particularly active as sellers. Calculations based on data supplied by BNP Paribas RE put the proportion of foreign investors involved in sales in the major locations during the past year at 39% (2009: 35%). Yield compression in the prime segment in the major cities Interest among potential investors and real estate financiers over the past year focused in particular on the core segment, in other words, on high-quality properties leased on a long-term basis in prime locations in the major cities. Initial yields for prime office buildings in the seven leading office markets therefore fell significantly during the last year from an average of 5.4% to 5.06%. Prime initial yields are now in the range from 4.85% in Munich to 5.3% in Stuttgart. In contrast, there were still no signs of significant downward yield compression in equivalent properties in city suburban locations (average value 5.75%) and in and peripheral locations (average value 6.85%) in the major office markets, not to mention yields for properties with problematic lettings, quality or locations, which were not yet on the radar of potential investors. Likewise, the regional office market centres have so far not experienced any significant fall in initial yields. Prime initial yields here range between 6% (e.g. in Essen) and 9% despite the significantly lower yields achieved in individual cases such as Hanover. Net investors in 6 major markets in € billion 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 '0 5 '06 '0 7 '08 '0 9 '10 Equity investors * Promoter Prime office initial yields 5.75% 5.25% 4.75% 4.25% Berlin Frankfurt Cologne Equity Funds Other * Equity investors include: Open-ended and closed-end funds, insurance companies, pension funds, private investors. Source: IVG Research based on data from BNP Paribas RE. Source: IVG Research '0 0 '02 '0 4 '06 '0 8 '10 '1 2e TOP 7: Ø Prime initial yields 7,0% 6.5% 6.0% 5.5% 5.0% 4.5% Dusseldorf Hamburg Munich '0 9 '10'11e Centre Periphery City suburban location Comment: Forecast <strong>2011</strong> as range Source: IVG Research 21
Page 1: Market report GerMany 2011
Page 4 and 5: 2 Dear Readers, In forming a valid
Page 6 and 7: 4 Implications of IVG Research for
Page 8 and 9: 6 Leading economic indicators such
Page 10 and 11: 8 Modern office buildings in short
Page 12 and 13: 10 Problem of structural vacancy no
Page 14 and 15: 12 Frankfurt: steady increase in va
Page 16 and 17: 14 Stuttgart: extremely stable tren
Page 18 and 19: 16 Constance Freiburg Augsburg Muni
Page 20 and 21: 18 … only if rents are less volat
Page 24 and 25: 22 Office Market Scoring and prime
Page 26 and 27: 24 Notes: German office markets 201
Page 28 and 29: 26 Office market scoring methodolog
Page 30: 28 Imprint IVG Immobilien AG Zander

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