GPP Commercial Property Market Germany´s top7 cities 2017/Q1-4

LOCAL EXPERTISE – ACROSS GERMANY
MARKET SURVEY INVESTMENT/OFFICE LETTING 2017/Q1-4
TOP-7
INVESTMENT
OFFICE LETTING
At the close of 2017 the volume of investment transactions
in commercial properties (excluding buy-to-let residential)
located in Germany’s top 7 cities had reached a
total of €29.9bn. Compared with the prior year’s €28.8bn,
this represented an increase of 4 %. Not only did the top
7 cities surpass the prior year’s volume of transactions,
but the result was also the second highest since 2007.
TRANSACTION VOLUME
At the end of 2017 Berlin posted the biggest increase in
the volume of transactions, which rose by 45 % to €7.3bn.
Five transactions, each priced at over €200m, were partly
behind this result, the capital city’s second highest ever.
The “Sony Center” on Potsdamer Platz was one such sale;
a consortium headed by Oxford Properties paid €1.1bn for
this complex alone. In 2017 it was the biggest single commercial
investment transaction in any of the top 7 cities.
Cologne also set a new record with year-on-year growth
of 28 %. The transaction volume of €2.3bn was some
20 % higher than the previous record set in 2015. A new
record was also set in Düsseldorf, where the sales of commercial
properties reached a total of €3.0bn by the end
of the year. The result in Frankfurt rose year on year by
a moderate 3 % to €6.7bn. Despite a 9 % drop compared
with 2016, sales in Munich totalled €5.9bn. With a transactions
result of €3.6bn, Hamburg slipped 20 % short of
the record €4.5bn posted in the prior year. Stuttgart generated
a transaction volume of €1.2bn and thus attracted
much less investment activity than in prior years.
INVESTORS AND VENDORS
International investors continued to take a great interest
in commercial properties located in Germany’s top 7 cities
and, having increased their activities somewhat, these
players accounted for nearly half of the total volume
traded. Berlin remained the hot spot for international
capital, where foreign investors accounted for 73 % of
total trades. Year on year portfolio sales in the top 7 cities
accounted for the same proportion of transactions by
value, at 23 % of the total.
YIELDS
In view of the mismatch between supply and demand,
the prime net yield continued its downward slide across
all asset classes and top 7 cities. The lowest prime net
yield was the 2.45 % noted for commercial buildings in
Munich, followed by 2.90 % for commercial buildings in
Hamburg and Berlin. Yields on offices ranged from 2.90 %
in Hamburg to 3.70 % in Cologne. The most expensive city
for logistics properties was Stuttgart, where the yield was
4.50 %.
OUTLOOK
In 2018 commercial properties in Germany’s top 7 cities
are set to remain a good investment. However, this presupposes
a stable, predictable environment on the capital
markets and on the political stage. In view of the remarkably
high demand and the glut of cash for investment
it is unlikely that there will be any great atmospheric
changes this year on the property investment markets
in the top 7 cities. Due to the shortage of real estate, the
transaction volume is not expected to be as high in 2018.
Transaction volume top 7 Transaction volume by asset classes top 7
(in €bn)
5-year average (2013-2017):
ca. €25.4bn
17.3 21.8 29.3 28.8 29.9 26.0
2013 2014 2015 2016 2017 2018
Logistics | 2 %
Commercial premises | 3 %
Undeveloped land
Retail
Hotel
8 %
8 %
6 %
Other | 1 %
72 %
Office
At the close of the year 2017 a new record take-up of
4.1m m² was announced for Germany’s top 7 office
letting markets. This result was the best in over ten
years and for the first time in history the four-million
mark was passed.
TAKE-UP OF SPACE
By the end of 2017, office-letting in Frankfurt had reached
an all-time high of 729,100 m², which was 30 % above
the figure for 2016 and on a par with the property market’s
high-water mark in 2000. In Hamburg the take-up of
space rose by 16 % in 2017, reaching a new record level
of 640,000 m². Year on year 15 % more office space was
taken up in Munich, leading to a total of 878,000 m². The
office market in Berlin surged forward to the best result
of the 7 cities and total take-up of 900,000 m², (+10 %) to
place ahead of Munich. The year-end total for Düsseldorf
was 358,700 m² of office space taken up. This translated
into an 8 % higher result than in 2016. In Cologne, however,
the take-up of office space fell by 30 % to 310,000 m²,
largely due to outlier transactions in the record year of
2016. In Stuttgart the take-up of office space declined by
38 % year on year to 270,000 m².
In 2017 the operators of co-working space or business
centres were very active in the pursuit of new premises
to rent. In almost all the top 7 cities these enterprises
posted rising shares of total take-up. The industry’s total
of 214,000 m² represented some 5 % of the total take-up
of space or nearly three times the amount rented in 2016.
RENTS
As a result of tight supply and a shortage of vacant space,
almost all the top 7 cities reported rising office rents in
2017. The biggest leap was seen in Berlin, where the average
rent rose by 21 % to €19.50/m²/month and the
premium rent rose by 9 %, thus reaching €30.00/m²/
month for the first time. Two other factors, apart from the
mismatch between supply and demand, are driving up
office rents: owners and landlords are passing on to their
tenants both the ever higher prices for building land as
well as the rising construction costs.
AVAILABLE AND VACANT SPACE
With the total stock of office space including sub-let
space standing at 90.7m m², the reserve of available
space in the top 7 cities has contracted further to total
a mere 3.7m m² at the end of the 4th quarter. This translates
into 4.1 % of the total stock of office space. The
most dramatic decline in office space available at short
notice was seen in Berlin, where supply contracted by
39 %. Munich (-31 %) and Stuttgart (-24 %) also struggled
with appreciably reduced amounts of vacant space. The
other top 7 cities saw vacancies drop by between 22 % Cologne)
and 15 % (Hamburg). Some 260 office new builds
are scheduled for completion this year and next, offering
a total rental space of around 2.5m m². A majority of this
space has, however, been pre-let or is being constructed
for an owner-occupier.
OUTLOOK
In view of the economic stability, the market for office lettings
in Germany will continue to boom in 2018. However, it
is to be expected that total take-up of space will be lower
than in 2017 because the shortage of available property
will become more acute. In view of burgeoning demand
and the low rates of completion scheduled for this year,
speculative new builds would possibly serve to steady
office rents but would not ease the situation in the short
to medium term.
Clients in Cologne, Düsseldorf and Frankfurt are still
looking for large suites of offices, which may result in
agreements in 2018. Considering that supply is becoming
ever shorter, it is unlikely that this year’s take-up totals in
the top 7 office-letting locations will match the record results
of 2017. Nevertheless, the office-letting business is
set to have a very good year because the overall stability
of the economy and a resilient labour market will continue
to fuel demand for office space.
Take-up of space top 7
(in 000s m 2 , incl. owner-occupiers)
5-year average (2013-2017):
ca. 3.5 million m 2
2.9 2.9 3.5 3.9 4.1 3.5
2013 2014 2015 2016 2017 2018
6 7
WWW.GERMANPROPERTYPARTNERS.DE