Market Report 2011 GerMany - Europe Real Estate
Market Report 2011 GerMany - Europe Real Estate
Market Report 2011 GerMany - Europe Real Estate
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22<br />
Office <strong>Market</strong> Scoring and prime initial yield <strong>2011</strong><br />
10%<br />
9%<br />
8%<br />
7%<br />
6%<br />
5%<br />
4%<br />
Prime initial yield<br />
“poor dogs”<br />
14.2% of the office stock<br />
of the random sample<br />
Ø = 6.95%<br />
Halle (Saale)<br />
Chemnitz<br />
Salzgitter<br />
The figure above compares prime initial yields of the 75 office locations under review<br />
(average yield 6.95%) with the values derived from the IVG office market scoring for<br />
the individual cities regarding their attractiveness for office investments. High scores<br />
indicate a high level of attractiveness while low scores indicate cities with a low level<br />
of investment attractiveness (average score 2.58).<br />
The figure shows that initial yields for offices in the individual German locations accurately<br />
reflect the prevailing general conditions in the individual office markets that<br />
were also taken into account in the office market scoring: The prime locations, which<br />
scored highest in terms of market volume, investment risk and future prospects, are<br />
concentrated in the lower right-hand quadrant. The high value estimation for the TOP<br />
7 locations in particular is reflected in high prices and low initial yields. The locations<br />
rated as “poor dogs” due to their low scores are punished by investors in the form of<br />
significant price discounts.<br />
The lower left-hand quadrant contains the (few) locations rated as overpriced based<br />
on the score values and initial yields. By contrast, the markets in the top right-hand<br />
quadrant offer the potential for increased value based on their score/initial yield combination.<br />
Solingen<br />
Gera Weimar Heilbronn<br />
Siegen<br />
Hamm<br />
Cottbus<br />
Krefeld<br />
Magdeburg<br />
Schwerin<br />
Rostock<br />
Ludwigshafen<br />
Ø = 2.58<br />
“Hidden Champions”<br />
4.1% of the office stock<br />
of the random sample<br />
“B-cities”<br />
23.8 % of the office stock<br />
of the random sample<br />
1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Overall score 5.0<br />
Source: IVG Research<br />
Saarbrücken<br />
Kassel<br />
Ratingen<br />
Braunschweig<br />
Bielefeld<br />
Constance<br />
Leipzig<br />
Regensburg<br />
Heidelberg<br />
Aschaffenburg<br />
Ulm<br />
Mainz<br />
Essen<br />
Karlsruhe<br />
Erlangen<br />
Münster<br />
Wiesbaden<br />
Ingolstadt<br />
Bonn<br />
Dresden<br />
Nuremberg<br />
H annover<br />
Dusseldorf<br />
Cologne<br />
Berlin<br />
Frankfurt<br />
Stuttgart<br />
Hamburg<br />
“Top locations”<br />
50.7% of the office stock<br />
of the random sample<br />
Munich<br />
Continued high demand in the investment<br />
market expected<br />
Demand for commercial and hence also for office property<br />
is likely to remain high. This view is supported by various<br />
economic arguments such as the prospect of rent increases<br />
and reductions in vacancies in the rental market, the anticipation<br />
of higher inflation rates and price adjustments to sovereign<br />
bonds as a result of interest rate hikes. The fact that<br />
Germany scored extremely highly as a real estate location<br />
in various recent investor surveys – such as those by INREV<br />
and ULI/ PWC – confirms the high level of interest among<br />
domestic and foreign investors in the German market.<br />
However, it is foreseeable that this high level of interest in<br />
the core segment will not be matched by a corresponding<br />
supply. While some property owners will use the next few<br />
months to complete sales given the advanced stage of yield<br />
compression, this coincides with an almost total absence of<br />
supply impulses emanating from modern projects yet to be<br />
constructed due to the shortened pipeline for new constructions.