Market in Minutes Germany investment markets Q2...

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Market in MinutesGermany investment markets Q2 2015

Savills World Research Germany Investment

The facts at a glanceHeading for new records? Residential: yes! Commercial: maybe.

■Despite talk of a ‘Grexit’ and interest rate rises, the boom in the German real estate investment market did not show any signs of slowing in the 2nd quarter of 2015 and even accelerated somewhat further. Almost €40bn was invested in commercial property and residential portfolios during the first half of the year.

■ The transaction volume for commercial property totalled €23.8bn - an increase of one third compared to H1 2014. Residential portfolios accounted for investment totalling €15.9bn during the same period (+105% compared with H1 2014).

■ With the German economy remaining extremely healthy despite the volatility in the financial markets and concerns surrounding Greece, demand for German commercial property remains very high. Furthermore, a glance at the individual sectors illustrates that the economic impetus is increasingly attributable to German consumers. More than €9.5bn was invested in retail property during the first half of the year, relegating office property into second place.

■ In the residential portfolio market, Deutsche Annington is the dominant player. The company’s acquisitions of Gagfah and Südewo represented the two largest transactions of the first half of 2015.

■ The ongoing low interest rate environment combined with increased volatility in the equity and bond markets is likely to mean sustained high levels of investment activity. Consequently, the residential market will end the year with a new record transaction volume and the 2007 record in the commercial market could also be surpassed.

Q2 2015


Market in Minutes | Germany Investment Markets

Commercial investment market Germany+++ Transaction volume +33% | Share of domestic investors decreases to 43% +++

3.59

6.53

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2015*

€bn

€bn

transaction volume, quarterly (left axis)transaction volume, past 12 months rolling (right axis)

GRAPH 1

Transaction volume

TAbLE 1

Key investment market figures

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Retail

Industrial / Logistics

Hotel

Development land

Other

past 12 month past 5 years

GRAPH 2

Transaction volume by sector

Source: SavillsSource: Savills / * forecast

Source: Savills / * prime yields = average of Top 7 markets

• The transaction volume for German commercial property totalled €46.8bn during the 12 months to June 2015, representing an increase of 18% compared with the 12-month volume to March 2015.

• High pressure to invest was not least responsible for investment activity increasingly shifting towards larger transactions. The first half of 2015 witnessed almost fifty deals for more than €100m. This was more than twice the amount completed in the first half of the previous year, and the trend is likely to continue.

• Against a background of continued low interest rates and increased volatility in the equity and bond markets, investors may feel compelled to increase allocations to real estate yet further within their portfolios. In any event, the transaction volume is likely to reach €50bn by the end of the year and may even surpass the record volume of €55bn, which was set in 2007.

German commercial investment market in minutesSuper-cycle reaches new high

Transaction volume (€m)

Share of domestic investors

Office prime net initial yield

High street prime net initial yield

H1 2015y-o-y change

12 months rolling

q-o-q change

12 months rolling

q-o-q change

Q22015

q-o-q change

Q22015

q-o-q change

Berlin 2,855 +137% 5,941 +19% 44% +2% 4.1% -10bps 3.7% -10bps

Düsseldorf 694 -43% 1,336 -10% 56% -29% 4.1% -10bps 3.8% +/-0bps

Frankfurt 2,689 +151% 6,214 +22% 55% +2% 4.1% -20bps 3.5% +/-0bps

Hamburg 1,784 +39% 3,814 +4% 38% -12% 4.1% -10bps 4.0% -20bps

Cologne 694 +65% 1,651 +39% 32% +/-0% 4.4% -10bps 4.1% -10bps

Munich 2,569 +51% 5,189 +50% 40% -15% 3.8% -10bps 3.5% +/-0bps

Stuttgart 658 +18% 1,001 +2% 51% +19% 4.5% +/-0bps 4.2% +/-0bps

Germany* 23,781 +33% 46,846 +18% 43% -9% 4.2% -10bps 3.8% -6bps

Q2 2015



Commercial investment market Germany+++ Special funds largest net investors | Prime yields moved in further +++

GRAPH 3

Transaction volume by locationGRAPH 4

Transaction volume by type of investor

Source: SavillsSource: Savills / * share of other locations 47% (past 12 months) and 49% (past 5 years) resp.

Property / Portfolio Type of use Location(s) Volume Buyer Vendor

Kaufhof portfolio Retail across Germany approx. €2,400m HbC / Simon Properties HbC

Odin portfolio Office across Germany approx. €625m** Orion Capital Managers Credit Suisse

Trianon Office Frankfurt approx. €540m NorthstarMadison Real Estate /

Morgan Stanley

Eurotower Office Frankfurt approx. €480m IVG RFR

mfi interest share Retail across Germany approx. €394m CPPIb Unibail-Rodamco

0%

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60%Germany

remaining Europe

North America

Asia/Pacific

Middle East

Other


GRAPH 5

Transaction volume by origin of buyer

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6%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2

Office Prime High Street

GRAPH 6

Prime yields

Source: SavillsSource: Savills

0%

2%

4%

6%

8%

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12%

14%Berlin

Düsseldorf

Frankfurt

HamburgCologne

Munich

Stuttgart


-9 -6 -3 0 3 6 9

Developer Corporate

Closed-ended fund Bank

Private-equity fund Open-ended public fund

Other asset manager Other

Public administration Leasing company

Housing association Sovereign wealth fund

Private investor / Family office Insurance company / Pension fund

Listed property company Open-ended special fund

€bn

Purchases, past 12 months Sales, past 12 monthsNet investments, Ø past 5 years Net investments, past 12 months

TAbLE 2

The largest transactions in Q2 2015 at a glance*

Source: Savills / * only published transactions are shown / ** latest market value

Q2 2015



Commercial investment market Berlin+++ Transaction volume 12M +19% | Prime office yield with 10 bps. decrease +++

0.68

0.39

0.51

0.67

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0.62

1.18

0.64

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0.62

2.59

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0.80

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0.59

1.17

1.91

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€bn

€bn


GRAPH 7

Transaction volume

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60%Germany

remaining Europe

North America

Asia/Pacific

Middle East

Other


GRAPH 9


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Retail


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Development land

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GRAPH 8


Source: Savills

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Developer Closed-ended fund

Bank Private-equity fund

Open-ended public fund Public administration Housing association

Sovereign wealth fund Leasing company

Other Listed property company

Corporate Open-ended special fund


Other asset manager

€bn


GRAPH 10


Source: Savills

Source: Savills

Source: Savills

• Almost €6bn was invested in commercial property in the German capital during the 12 months to June 2015. This represents an increase of 19% on the 12-month volume to the end of the first quarter.

• Compared with the other top markets in Germany, investment in berlin is more focused on b and C locations. This is reflected in the three largest office transactions of the first half-year: the acquisition of Stettiner Carree near the Nordbahnhof railway station by Allianz, the purchase of the Deutsche-bank-Campus at Ernst-Reuter-Platz by DAWM and the acquisition of an office complex in Lichtenberg by I-Reit Global.

• Since foreign investors in particular are still seeking investment opportunities in berlin and a number of major transactions are still pending completion, the second half of the year is likely to see a similar level of investment activity to the first, resulting in a transaction volume of at least €6bn for 2015.

Berlin market in minutesBerlin establishes itself as the investment capital

Q2 2015



Commercial investment market Düsseldorf+++ Transaction volume 12M -10% | Prime office yield with 10 bps. decrease +++

0.24

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0.59

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€bn

€bn


GRAPH 11

Transaction volume

0%

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60%Germany

remaining Europe

North America

Asia/Pacific

Middle East

Other


GRAPH 13


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Retail


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GRAPH 12


Source: Savills

-0.4 -0.2 0.0 0.2 0.4

Corporate Private-equity fund Closed-ended fund

Open-ended public fund Developer

Other asset manager Public administration

Bank Housing association

Sovereign wealth fund Other

Leasing company Open-ended special fund

Insurance company / Pension fund Private investor / Family office

Listed property company

€bn


GRAPH 14


Source: Savills

Source: Savills

Source: Savills

• The 12-month transaction volume to the end of June in Düsseldorf totalled approx. €1.3bn, representing a decrease of 10% compared with the corresponding figure to the end of the first quarter.

• Düsseldorf was the only top-six investment market to register a decline in its transaction volume, which was primarily attributable to a lack of transactions above €100m. Faced with a scarcity of such properties on the market, particularly in investors’ preferred core segment, investors are increasingly shifting their attention to smaller deals.

• Düsseldorf’s b locations are also benefiting from investors extending their search profiles to AbbA strategies. Furthermore, investors are increasingly prepared to pay higher prices for good opportunities in such locations. As a result, secondary locations are expected to witness stronger yield compression than the prime segment over the remainder of the year.

Düsseldorf market in minutesScarcity of large core assets causes decline in transaction volume

Q2 2015



Commercial investment market Frankfurt+++ Transaction volume 12M +22% | Prime office yield with 20 bps. decrease +++

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GRAPH 15

Transaction volume

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remaining Europe

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Other


GRAPH 17


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Retail


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GRAPH 16


Source: Savills

-2 -1 0 1 2

Other asset manager Developer

Bank Closed-ended fund

Open-ended public fund Corporate

Public administration Housing association


Private-equity fund Other


Listed property company Open-ended special fund

€bn


GRAPH 18


Source: Savills

Source: Savills

Source: Savills

• More than €6.2bn was invested in commercial property in Frankfurt during the 12 months to the end of June 2015. This represents an increase of 22% on the corresponding figure to the end of the first quarter.

• The office sector dominated market activity during the first half of 2015, not least due to a scarcity of retail property. Offices accounted for more than 80% of investment during the period. Investors’ interest remains primarily focused on the core and core plus segments, although activity in the value-add area has recently increased significantly. This is illustrated by the large number of property sales in b locations. Five properties have changed hands in Niederrad alone during the current year.

• The high proportion of foreign purchasers has further increased pressure on yields as investors assess Frankfurt in an international context. Indeed, compared with other major cities worldwide, Frankfurt remains relatively inexpensive. Consequently, yields are likely to harden further across all market segments.

Frankfurt market in minutesYields harden as foreign investment grows

Q2 2015



Commercial investment market Hamburg+++ Transaction volume 12M +4% | Prime office yield with 10 bps. decrease +++

0.08

0.23

0.93

0.63

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0.54

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GRAPH 19

Transaction volume

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70%Germany

remaining Europe

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Asia/Pacific

Middle East

Other


GRAPH 21


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80%Office

Retail


Hotel

Development land

Other


GRAPH 20


Source: Savills

-1.0 -0.5 0.0 0.5 1.0

Open-ended public fund Developer Corporate

Other asset manager Listed property company

Leasing company Housing association

Other Bank

Sovereign wealth fund Public administration

Closed-ended fund Private-equity fund

Insurance company / Pension fund Private investor / Family office

Open-ended special fund

€bn


GRAPH 22


Source: Savills

Source: Savills

Source: Savills

• The 12-month transaction volume to the end of June 2015 in Hamburg reached just over €3.8bn, representing a 4% increase on the corresponding figure from three months earlier.

• It is noteworthy that transaction activity was almost exclusively limited to the office sector. Offices accounted for almost €1.4bn of investment, which represented almost three quarters of the total transaction volume. The main reason for the relatively low transaction volume in the retail sector (approx. €0.2bn) is the low liquidity on the supply side. Owners of retail property remain reluctant to dispose of their investments.

• Properties in prime locations are also rare in the office segment, causing investment activity to shift further into b locations. Altona has been a particular focus of attention over the last two years and a number of deals are likely to be completed in the City South submarket. A number of properties are also expected to come to the market in City North. Risk premiums in such locations are likely to be eroded further as investors are prepared to pay higher prices.

Hamburg market in minutesOffice deals dominate, particularly in B locations

Q2 2015



Commercial investment market Cologne+++ Transaction volume 12M +39% | Prime office yield with 10 bps. decrease +++

0.26

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€bn


GRAPH 23

Transaction volume

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remaining Europe

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Other


GRAPH 25


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GRAPH 24


Source: Savills

-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6

Insurance company / Pension fund Developer Corporate

Bank Open-ended public fund

Private-equity fund Other

Leasing company Open-ended special fund

Sovereign wealth fund Housing association

Public administration Private investor / Family office

Closed-ended fund Other asset manager

Listed property company

€bn


GRAPH 26


Source: Savills

Source: Savills

Source: Savills

• Almost €1.7bn was invested in commercial property in Cologne during the 12 months to the end of June 2015, representing an increase of 39% compared with the corresponding figure to the end of the first quarter.

• Transaction activity during the first half of 2015 was particularly characterised by smaller transactions. Only the barthonia-Forum and the Kaufhof property on Hohe Straße changed hands for more than €100m during the period. The latter formed part of the department store portfolio sold by HbC. The average transaction size across all properties sold was just over €18m, which was significantly higher than the previous year’s figure (approx. €12m).

• Owing to the high demand, yields remained under pressure during the second quarter. In the prime segment, yields hardened by 10 basis points on both offices and high-street properties to 4.4% and 4.1% respectively. Further slight compression is expected over the coming months.

Cologne market in minutesTwo large transactions in a market of otherwise small deals

Q2 2015



Commercial investment market Munich+++ Transaction volume 12M +50% | Prime office yield with 10 bps. decrease +++

0.18

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0.29

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0.86

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GRAPH 27

Transaction volume

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50%Germany

remaining Europe

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Other


GRAPH 29


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GRAPH 28


Source: Savills

-1.0 -0.5 0.0 0.5 1.0

Developer Other asset manager

Other Private investor / Family office

Private-equity fund Corporate

Bank Public administration Housing association

Leasing company Listed property company

Closed-ended fund Insurance company / Pension fund

Sovereign wealth fund Open-ended public fund

Open-ended special fund

€bn


GRAPH 30


Source: Savills

Source: Savills

Source: Savills

• Around €5.2bn was invested in commercial property in Munich during the 12 months to the end of June 2015. This represents an increase of more than 50% compared with the corresponding figure for the 12 months to the end of the previous quarter.

• The three largest office transactions were the acquisition of a majority share in the Siemens Campus by a joint venture between Pramerica and Chinese sovereign wealth fund Gingko Tree, the purchase of 88north by Amundi and the acquisition of the Leitwerk by Real I.S. All three properties are situated in b locations in Munich. With owners of core properties still reluctant to sell, many investors are expanding their search profiles and are increasingly shifting their attention to b locations as well as the value-add segment.

• Against this background, net initial yields on office properties in b locations are likely to harden by a further 20 basis points by the end of the year. Slight yield compression is also expected in the prime segment.

Munich market in minutesTransaction volume continues upward trend, yield compression intensifies

Q2 2015



Commercial investment market Stuttgart+++ Transaction volume 12M +2% | Prime office yield stable at 4.5% +++

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GRAPH 31

Transaction volume

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Other


GRAPH 33


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GRAPH 32


Source: Savills

-0.3 -0.2 -0.1 0.0 0.1 0.2 0.3

Developer Bank

Private-equity fund Private investor / Family office

Corporate Other asset manager

Closed-ended fund Insurance company / Pension fund

Other Public administration


Housing association Listed property company Open-ended special fund Open-ended public fund

€bn


GRAPH 34


Source: Savills

Source: Savills

Source: Savills

• Almost exactly €1bn was invested in commercial property in Stuttgart between July 2014 and June 2015. This represents an increase of 2% on the corresponding figure from the first quarter of 2015.

• The preferred locations of most investors are the city centre as well as the airport and its surrounding area. For risk-averse investors in particular, Stuttgart is an extremely attractive market in the current environment. Core properties are not yet as expensive in the city compared with elsewhere, despite Stuttgart’s economic fundamentals competing with those of the other top markets.

• Moderate yield compression is therefore expected in the prime segment over the coming months. The reluctance of most landlords to sell their property is likely to exert additional pressure on yields.

Stuttgart market in minutesAttractive environment for core investors

Q2 2015



Commercial portfolio investment market Germany+++ Transaction volume 12M +37% | Share of retail portfolios at 45% +++

0.69

1.00

1.82

1.17

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1.90

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2.77

6.27

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GRAPH 35

Transaction volume

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remaining Europe

North America

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Other


GRAPH 37


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Retail

Industrial / LogisticsHotel

Other


GRAPH 36


Source: Savills

-6 -4 -2 0 2 4 6

Open-ended public fund Closed-ended fund

Bank Developer

Other asset manager Other

Housing association Leasing company

Public administration Sovereign wealth fund

Private investor / Family office Private-equity fund

Corporate Insurance company / Pension fund

Open-ended special fund Listed property company

€bn


GRAPH 38


Source: Savills

Source: Savills / * forecast

Source: Savills

• The transaction volume for German commercial property portfolios totalled €16.3bn for the 12 months to the end of June. This represents an increase of 37% on the corresponding figure to the end of the first quarter.

• There is significant momentum on both the supply and demand side. The high pressure to invest is increasingly attracting investors to the portfolio segment and owners are taking advantage of the favourable market environment to bring portfolios to the market.

• Foreign investors were on the purchaser side in two out of three portfolio transactions. Furthermore, since their acquisitions were above average in size, this group accounted for almost 85% of the overall transaction volume. Investors from North America and the United Kingdom in particular are surging into the German portfolio segment. On the vendor side, domestic investors were significantly more active than they were as purchasers, accounting for 50% of disposals. As a result, this group made net portfolio disposals totalling approx. €3bn during H1.

German commercial portfolio market in minutesForeigners are buying, Germans are selling

Q2 2015



Residential portfolio investment market Germany+++ Transaction volume 12M +21% | Price per unit increased to €68,100 +++

0.52

0.76

0.91

0.97

1.86

1.48

3.58

2.68

1.46

3.08

1.45

4.29

2.92

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2015*

€bn

€bn


GRAPH 39

Transaction volume

Berlin21%

Dresden12%

Kiel4%

Mönchen-gladbach

5%Bremen

4%

Other55%

GRAPH 41

Transacted units by location*

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2007 2008 2009 2010 2011 2012 2013 2014 2015 H1

Num

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100 < 800 units 800 < 2,000 units< 5,000 units < 10,000 units10,000+ units Units per transaction

GRAPH 40

Size of portfolios transacted

Source: Savills

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Other

past 12 months past 5 years

GRAPH 42

Transacted units by type of city*

Source: Savills / * based on the bulwiengesa classification

Source: Savills / * forecast

Source: Savills / * past 12 months

• The transaction volume for German residential portfolios totalled approx. €21.7bn over the last 12 months. This represents an increase of 21% on the corresponding figure to the end of the first quarter of 2015.

• The pursuit of expansion is a particular driver of the current momentum in the German residential investment market. This is particularly true of listed residential property companies, who have been responsible for 80% of the overall transaction volume this year. The acquisition of Gagfah by Deutsche Annington alone accounted for more than half of the transaction volume in the first half of the year.

• The continued huge demand for German residential property is not only reflected in the transaction volume but also in price growth. The price paid per unit stood at approx. €68,100 during the first half of 2015; an increase of 26% on the previous year. The strong price growth is resulting in increasing willingness to sell, even among those investors who originally envisaged longer holding periods.

German residential portfolio market in minutesTransaction volume doubles, prices rise by a quarter

Q2 2015



Residential portfolio investment market Germany+++ Share of domestic buyers at 86% | Listed companies were largest net investors +++

0%

20%

40%

60%

80%

100%Germany

remaining Europe

North America

Asia/Pacific

Middle East

Other


GRAPH 43


-15 -12 -9 -6 -3 0 3 6 9 12 15

Insurance company / Pension fundDeveloperCorporate

Other asset managerPrivate-equity fund

Private investor / Family officePublic administration

Open-ended public fundBank

Leasing companyOther

Sovereign wealth fundClosed-ended fund

Housing associationOpen-ended special fundListed property company

€bn


GRAPH 45


0%

20%

40%

60%

80%

100%Germany

remaining Europe

North America

Asia/Pacific

Middle East

Other


GRAPH 44

Transaction volume by origin of seller

Source: Savills

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 Q2

2010 Q4

2011 Q2

2011 Q4

2012 Q2

2012 Q4

2013 Q2

2013 Q4

2014 Q2

2014 Q4

2015 Q2

€/sq

m

Average price per unit, past 12 months rolling

GRAPH 46

Development of prices*

Source: Savills / * for portfolios with at least 100 units each

Source: Savills

Source: Savills

Portfolio Number of units Volume Buyer Vendor

Südewo approx. 19.800 approx. €1,900m Deutsche Annington Patrizia et al.

Obligo approx. 13.500 undisclosed Patrizia Obligo Investment Management

Westgrund approx. 15.300 approx. €790m Adler Real Estate Westgrund

- approx. 4.500 undisclosed Deutsche WohnenReggeborgh Vastgoed

beleggingen

- approx. 8.500 undisclosed Grand City Adurion

TAbLE 3

The largest residential portfolio transactions in Q2 2015 at a glance*

Source: Savills / * only published transactions are shown

Market in Minutes | Germany Investment Markets Q2 2015


Savills is present in Germany with around 160 employees with seven offices in the most important estate sites berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Today Savills provides expertise and market transparency to its clients in the following areas of activity:

Our services » Purchase and sale of single

assets and portfolios » Corporate Finance - Valuation » Leasing of office and retail

buildings » Leasing and sale of industrial

and warehouse properties » Corporate Real Estate Services

Savills Germany

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www.savills.de

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Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is acompany that leads rather than follows and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East with more than27,000 employees worldwide. Savills is present in Germany with around 160 employees with seven offices in the most important estate sites berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart.

This bulletin is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. © Savills July 2015

Savills GermanyPlease contact us for further information

Marcus LemliInvestment Europe+49 (0) 69 273 000 [email protected]

Sascha HanekopfInvestment Hamburg+49 (0) 40 309 977 [email protected]

Andreas WendeInvestment Germany+49 (0) 40 309 977 [email protected]

Dr. Frank UrferInvestment Munich+49 (0) 89 427 292 [email protected]

Steffen PulvermacherInvestment berlin+49 (0) 30 726 165 [email protected]

Dr. Frank UrferInvestment Stuttgart+49 (0) 711 22 254 [email protected]

Stefan MelliesInvestment Düsseldorf+49 (0) 211 22 962 [email protected]

Karsten NemecekCorp. Finance - Valuation+49 (0) 30 726 165 [email protected]

Jürgen SchmidInvestment Frankfurt+49 (0) 69 273 000 [email protected]

Matthias PinkResearch Germany+49 (0) 30 726 165 [email protected]

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