Berlin's commercial real estate market had a similarly weak 4th quarter of 2023 to the previous quarter (EUR 575 million) with a transaction volume of EUR 580 million. This brought the 2023 total to EUR 3.27 billion, which is 62 percent less than the previous year and 66 percent below the 5-year average.
Clemens von Arnim, Head of Capital Markets Berlin at C&W, summarises: “With few transactions in the last quarter, the investment market is closing this year below even the expectations of the beginning of the year. Even though most market participants expect interest rate cuts in the middle of 2024, it will still be some time before the real estate investment market recovers. It is not only the length of acquisition process that play a role here. The persistently narrow spread to bond yields, even after an initial interest rate cut, will unlikely be large enough to persuade the majority of investors to buy.”
Transaction volume: Lowest since 2011
- Since the turnaround in interest rates in 2022, Berlin's investment market has been increasingly inactive. For the second year in a row, the commercial real estate transaction volume has declined, having now fallen to its lowest level since 2011.
- The few major transactions which took place (six deals over EUR 100 million) in 2023 as a whole were mainly related to sellers who were in distress due to increased financing costs.
- The buyers mainly comprise those investors, who are scarcely affected by the difficult financing environment due to their high equity ratio. For example, private equity companies are increasingly appearing, such as in the purchasing of Moabit Office at the beginning of 2023. Furthermore, the proportion of family offices on the buy-side also increased from 3 percent (2022) to 8 percent (2023).
Yields: Prime yields rise again in all segments
- The prime yield on office properties increased by 20 basis points on the previous quarter to 4.60 percent (+100 basis points compared to the end of 2022). Over two years, the total increase was even 200 basis points, following the rapid rise in bond yields
- The prime yield for centrally-located high street commercial buildings increased by 35 basis points to 4.35 percent (+85 basis points compared to the end of 2022).
- For logistics properties, the prime yield is 4.50 percent at the end of Q4, 20 basis points more than the previous quarter and 50 basis points more than at the end of 2022.
Property types: Sharpest decline in office real estate
- The office real estate transaction volume in Q4 amounted to EUR 240 million, bringing the total to EUR 675 million for the full year. This represents a decrease of 79 percent from 2022 and is 88 percent below the 5-year average.
- Retail real estate transaction volume, on the other hand, was significantly higher than in 2022 (+273 percent) at EUR 160 million in Q4 and EUR 1.05 billion for the year as a whole. A major contributor here was the sale of stake in KaDeWe at the beginning of the year. In 2023, however, 15 retail warehouse properties also changed hands with a total volume of around EUR 220 million.
- C&W recorded no logistics and industrial real estate transactions in Q4, with the total transaction volume at the end of the year remaining at EUR 240 million. This is a halving compared to 2022.
- In the last three months of the 2023, Berlin’s hotel real estate transaction volume was EUR 100 million. With the resulting annual total of EUR 180 million, this segment proved therefore less weak than previously expected, but still exhibited a year-on-year decline of 43 percent.
