German commercial real estate transaction volume in 2023 was the lowest of the past twelve years, at EUR 21.46 billion, more than halving from the previous year (-59 percent). This was the lowest result since 2010 (EUR 18.81 billion).
This was mainly due to the difficult situation over the course of the year, with a combination of high financing conditions, protracted price correction phases, high inflation and a weakening economy leading caution and hesitancy among institutional investors. However, there are already positive signs of more stable and improved conditions in the financial and capital markets due to falling inflation, bond yields and swap rates. In addition, a first key interest rate cut is expected from mid-2024.
Alexander Kropf, Head of Capital Markets Germany, commented on the outlook: “The protracted price correction phases are gradually approaching their peak, and there are signs of yields this stabilising year. With a reliable and predictable financing environment, confidence in an imminent market revival will grow, and so will transaction volume. In the office segment in particular, we also expect increasing pressure, due to increasing refinancing, on the seller-side with attractive opportunities for institutional investors.”
Transaction volume: Year-end rally absent in final quarter
- As expected, the year-end rally failed to materialise, but the 4th quarter nevertheless saw the strongest transaction volume of the year at EUR 5.94 billion, which was slightly above the result of the 3rd quarter (EUR 5.71 billion).
- The contribution of individual property sales to transaction sales was around 75 percent in 2023, the highest proportion of the past five years. These included a number of large shareholdings, mainly in Berlin, such as Berlin's KaDeWe, Galeria Weltstadt-Haus and the takeover of Signa’s Beam office project.
- Portfolio transactions were particularly strong in the second half of the year. The largest of these was the sale of the X-Bricks portfolio comprising a total of 188 grocery stores to Slate Asset Management for just over EUR 1 billion in the third quarter. In the 4th quarter, further portfolio sales in the three-digit-million-euro range took place, mainly in the retail segment.
- In total, portfolio transactions for the year as a whole contributed around EUR 5.37 billion, or around 25 percent of the total German CRE transaction volume.
Yields: Prime yields are nearing their peak
- At the end of Q4, the average prime office yield for core properties in the top-7 markets was 4.78 percent. This represents an increase of 29 basis points compared to the end of Q3 and an increase of 127 basis points year-on-year.
- The lowest prime office yields are currently achieved in Munich and Berlin, both at 4.60 percent, followed by Hamburg and Frankfurt at 4.70 and 4.75 percent respectively. In Düsseldorf and Cologne, the prime office yield was highest at 5.00 percent at the end of the 4th quarter. Across all markets, prime office yields increased by 20 to 40 basis points compared to the previous quarter. While the yield in Berlin rose by 20 basis points, Munich recorded an increase of 40 basis points.
- The average prime yield for centrally-located high-street commercial buildings increased by 30 basis points to 4.49 percent in Q4.
- For logistics properties, the average yield is currently 4.50 percent, which is 20 basis points higher than three months previously. On a year-on-year basis the average yield for inner-city commercial buildings increased by 81 basis points and for logistics properties by 50 basis points.
Property sectors: Retail and logistics industrial properties are in the lead, office properties only in third place
- Logistics and industrial properties generated a transaction volume of EUR 5.82 billion for the year as a whole, making this the strongest asset class (27 percent of revenue) in the commercial real estate investment market. However, there was still a decline here compared to the previous year's result of 37 percent. At EUR 2.23 billion, the fourth quarter exceeded the already positive result of the third quarter (EUR 1.89 billion).
- In 2023, there were four portfolio transactions in excess of EUR 200 million. At around EUR 560 million, the largest portfolio transaction was the acquisition from VGP of a 50 percent stake in five logistics properties by Deka Immobilien, as part of a joint venture. In addition, Hansainvest acquired a portfolio consisting of six distribution halls from DFI Real Estate for around EUR 270 million.
- At around EUR 1.11 billion, the office real estate transaction volume increased in the final quarter (Q3 / 2023: EUR 930 million), but the full-year result continued to be severely impacted by the turnaround in interest rates, restrictive financing conditions and discussions about the intrinsic value of office properties in the light of ESG requirements and the spread of remote working. Around EUR 4.40 billion was invested in office properties in 2023 as a whole, 78 percent less than a year earlier. This is the lowest transaction volume since 2009 (EUR 3.85 billion).
- The clear majority of transactions were for properties at less than EUR 50 million with a clear focus on value-add and core-plus risk classes.
- The transaction volume for retail real estate totalled around EUR 5.12 billion in 2023, which corresponds to 24 percent of the total. Compared to 2022, this represents a decline of around 35 percent. The main contributor to the total was the portfolio sales of 188 grocery stores by X-Bricks to Slate Asset Management for around EUR 1 billion in the third quarter. In Q4, the majority of transactions were limited to individual property sales of less than EUR 50 million, with a transaction volume of only EUR 950 million. The only other portfolio transactions to exceed the EUR 100 billion mark were the Garbe takeover of GRR AG, involving a total of 52 grocery stores, and the acquisition of the Globus portfolio by Deutsche Anlagen Leasing.
- Hotel transaction volume recorded a 35 percent year-on-year decline to EUR 1.19 billion. The majority of this, some EUR 750 million, was generated in the final quarter of 2023. This includes the sale of Lagune International's Center Parks Allgäu to TwentyTwo Real Estate.
- In the “Other” real estate category, the transaction volume totalled EUR 4.93 billion in 2023 (Q4 / 2023: EUR 900 million). With a contribution of EUR 2.14 billion, this segment was dominated by trading in development plots, while properties with a focus on commercial mixed-use were traded for a total of EUR 1.38 billion.
Top-7 markets: Berlin remains the market with the highest transaction volume
- Around EUR 8.17 billion of transaction volume was recorded in the top-7 markets in 2023, which corresponds to 38 percent of the German total. The year-on-year decrease was 69 percent.
- The majority of office transactions took place within the top-7 markets. More than half of Germany's office transaction volume (56 percent, EUR 2.47 billion) was accounted for by these seven German office strongholds. The second-largest transaction volume by property type was generated by retail real estate, accounting for some 31 percent of the CRE total.
- Three markets, Berlin, Hamburg and Munich each managed to generate transaction volumes which topped the EUR 1 billion mark. With EUR 3.27 billion, Berlin continues to lead, followed by Hamburg (EUR 1.20 billion) and Munich (EUR 1.18 billion). The markets which currently exhibit the lowest transaction volumes are Stuttgart, with EUR 575 million, and Cologne with EUR 435 million.
