Investment market for commercial real estate collapses by 72 per cent
In the first quarter of 2023, the German investment market for commercial real estate reached a transaction volume of €5.1bn, according to research by the international real estate consultancy Cushman & Wakefield (C&W). This is 72 percent less than in the same period last year. This means that the first three months of 2023 were the weakest start to a year since 2010.
At 31 percent or €1.6 billion, the highest share of the transaction volume was accounted for by retail properties. C&W puts the decline compared to the first quarter of 2022 at 30 per cent. The relatively positive result for the retail sector is due not least to the sale of 49.9 percent of Berlin’s KaDeWe department store to the Central Group from Thailand as well as the increase in Deutsche Euroshop’s share in five German shopping centres.
The transaction volume of office properties plummeted by almost 90 percent to 1.05 billion euros compared to the same period of the previous year. Only 2009 and 2011 had started the year even weaker in the previous 15 years. The majority of office properties sold in the first quarter were in the price range below 50 million euros. Value-add and core-plus properties dominated. Core properties and properties above 100 million euros remained the exception. For core properties in particular, the necessary downward price adjustment triggered by the turnaround in interest rates has not yet been completed, which is causing a widespread standstill in transactions in this sector. Buyers are focusing their attention primarily on value-add and core-plus properties in very good and central locations, not least with regard to compliance with ESG criteria.
Logistics and hotel also down significantly
Sales of logistics and industrial properties achieved a transaction volume of 795 million euros, 79 percent below the previous year’s figure. Two transactions of 100 million euros each supported the result, including the sale of the industrial and commercial park “Areal Böhler” in Meerbusch to Jamestown.
Hotel sales recorded a 49 per cent decline in turnover compared to the opening quarter of 2022 to 180 million euros (share of 4 per cent). In the “Other” sector, which at 1.5 billion euros (minus 34 percent) is almost on a par with the transaction turnover of the retail properties, the sales of development properties dominated with 805 million euros.
Few portfolio deals and restrained foreign capital
The turnover volume attributable to portfolio deals posted both the lowest quarterly value and the lowest share (12 per cent) of the total transaction volume since the last quarter of 2011 with a minus of more than 90 per cent and a value of 630 million euros. The majority of portfolio sales were below 50 million euros. The largest and only portfolio in the three-digit million euro range was Deutsche Euroshop’s share increase in five shopping centres in Germany. Foreign capital was involved in the 1st quarter of 2023 with 34 percent, but is clearly below the more than 50 percent share of the past five years.
Yields continue to rise
The rise in yields triggered by the turnaround in interest rates in Q2 2022 continued unabated in Q1 2023. In the first three months, the averages of the respective prime values in the top 7 markets rose on average by 32 basis points to now 3.83 per cent for office properties, by 30 basis points to now 3.90 per cent for city centre commercial properties and by 15 basis points to 4.15 per cent for logistics properties.
Munich is the most expensive office market with a top yield of 3.50 per cent, followed by Berlin, Frankfurt and Hamburg (each 3.80 per cent), Düsseldorf and Cologne (each 3.90 per cent). Stuttgart, at 4.10 per cent, has already exceeded the 4 per cent threshold. For commercial properties, Munich and Düsseldorf are at the top with values of 3.40 per cent and 3.50 per cent. Yields for logistics properties are quoted at 4.15 per cent in all seven top regions.