According to international real estate consultancy firm Cushman & Wakefield (C&W), Munich’s commercial real estate transaction volume was around EUR 1.56 billion in the 1st half of 2022. Compared to the strong first half of the previous year, this represents a decline of 48 percent. The result is also 39 percent below the H1 five-year average (EUR 2.56 billion) and 31 percent below the H1 ten-year average (EUR 2.25 billion).
70 percent of transaction volume contributed by the office segment
The three largest transactions in the first six months involved individual office properties and were already concluded in the first quarter: the Olympia Business Center, the Allianz building in Unterföhring and an office building in Milbertshofen leased to BMW. A good third of the transaction volume in the first half of 2022 was accounted for by the EUR 50 to 100 million size category, via eight deals totalling EUR 533 million.
Office properties were clearly the focus of investors’ attention and contributed almost 70 percent of commercial real estate transaction volume. At just under EUR 1.1 billion, the result for this asset class was well below the last year’s equivalent figure (EUR 2.6 billion).
C&W registered a transaction volume of around EUR 100 million in the logistics and industrial segment. This corresponds to a contribution of 6 percent. The previous year's result (EUR 86 million) was significantly exceeded. The hotel segment contributed only around EUR 50 million, which corresponds to 3 percent of the total and was a very substantial fall from last year’s mid-year figure of around EUR 191 million.
Less demand for low-risk investments
The focus on low-risk properties has diminished, while demand for opportunistic and value-add properties increased in the second quarter. Overall, 71 percent of commercial investment volume in the first six months of 2022 was in low-risk properties in the Core and Core+ risk classes. The participation of international capital was 13 percent, well below the previous year's 35 percent.
Jan Isaakson, Head of Capital Markets Munich at Cushman & Wakefield, summarises: "In the first half of the year, the transaction volume in Munich remained significantly below expectations. Many transactions are taking longer than expected or have been cancelled. This is mainly due to the changing interest rate environment, the resulting higher financing costs and lower purchase price offers. We are currently seeing price reductions of around 10 percent for some transactions, depending on asset class and property quality. Whether transactions will gain momentum again in Q3 and Q4 2022 based on this price level is, as yet, unforeseeable."
Increase in prime office yields expected by the end of the year
The last time prime yields were as high as the current level was in Q2 2018. The prime yield for Munich office properties at the end of Q2 2022 is 2.75 percent, which is 25 basis points higher than the previous quarter. In view of the significant increase in yields for government bonds and financing interest rates, the downward trend in office yields has reversed for the time being. C&W expects yields to continue to rise slightly until the end of the year.
Logistics properties are currently trading at a prime yield of 3.10 percent. This is 20 basis points less than a year ago, but 10 basis points more than at the end of the previous quarter. The prime yield for inner-city commercial properties fell by 20 basis points year-on-year to 3.00 percent, after the pandemic initially pushed yields out by 50 basis points in 2020.