According to international real estate consultancy firm Cushman & Wakefield (C&W), the commercial real estate and development land transaction volume in the Frankfurt market area in the first three quarters of 2023 amounts to some EUR 570 million. Compared to the same point last year, this corresponds to a decline of 86 percent. The 10-year average was missed by 85 percent.
Offices lose out to mixed-use properties and plots of development land
Again, in Q3, no transactions of more than EUR 100 million took place in Frankfurt’s commercial real estate market area. The largest transaction in 2023 remains the sale of Kölner Strasse 10–12 in Eschborn to French investment manager Advenis for around EUR 70 million in Q2. With only two deals, 24 percent (EUR 50 million) of the total transaction volume in Q3 was contributed by the office segment. In the year to date, this asset class has so far totalled around EUR 210 million or 37 percent.
The interest rate shock and the resulting increase in financing costs, combined with unfinished pricing, are continuing to lead to very cautious investor behaviour, especially regarding Core real estate.
Sales of mixed-use properties and land, on the other hand, amounted to EUR 140 million in the third quarter and contributed 68 percent of the total CRE transaction volume. Over the first three quarters of the year, this contribution is 41 percent.
The City of Frankfurt is currently an important participant in this segment, among other things through the purchase of the former Postbank building in Eckenheimer Landstrasse, where a conversion into two schools is planned, and a plot of land in "Parkstadt II" in Unterliederbach, on which a vocational school campus is to be built. Further purchases by the city may follow in the coming months as space for new schools is sought.
Sales of industrial and logistics properties achieved a transaction volume of around EUR 60 million in the year to date, accounting for around 11 percent of the total in the Frankfurt market area. The acquisition of a logistics portfolio at Frankfurt Airport by Peakside Capital Advisors in Q2 made a significant contribution to this.
In the Q3, market activity was particularly focused on transactions in the opportunistic and value-add risk classes (62 percent). In the current market situation, these risk classes offer investors an opportunity to enter the market in individual cases.
Michael Fleck, Head of Capital Markets Frankfurt at C&W, explains: "In many cases, the asking price and bids are still far apart, so that sales processes are often discontinued after the market has been addressed. Ever more investors are focusing on other asset classes and reducing investment capital for the office sector. As a result, transaction activity in this asset class has almost come to a standstill."
Last year, a revival of the market was forecast for the second half of 2023. However, due to the fact that price expectations between buyers and sellers are still very divergent, this has so far failed to materialise. For Q4, C&W does not expect any significant year-end rally.
Prime yield for all asset classes above 4 percent
The net initial yield for prime quality office properties in prime locations was 4.35 percent at the end of Q3 2023. This represents an increase of 40 basis points compared to the previous quarter and an increase of 125 basis points compared to Q3 2022. The net initial yield for first-class quality office properties in non-central locations increased by 50 basis points, to 6.00 percent, compared to the previous quarter and is 100 basis points higher than a year previously.
First-class logistics properties are currently trading at a prime yield of 4.30 percent. Compared to the end of June 2023, this figure has increased by 15 basis points. City centre high-street commercial buildings were quoted at 4.20 percent, an increase of 10 basis points compared to Q2 2023.
C&W expects yields to continue to rise significantly across all asset classes for the remainder of the year.
