In Frankfurt we recorded a CRE transaction volume of EUR 270 million in the 4th quarter of 2023, making it the strongest of the year, and bringing the total transaction volume to EUR 840 million. This is the first time since 2009 that the figure has fallen short of the EUR 1 billion mark. Compared to the previous year's result, this also corresponds to a decline of around 82 percent. The result fell short of the 10-year average by 87 percent.
Michael Fleck, Head of Capital Markets Frankfurt, explains: “In line with the end-of-year results of the German top-7 markets, Frankfurt’s transaction volume in 2023 also fell to a near-record low. Moreover, market activity will not resume immediately if interest rates are reduced. This is, on the one hand, due to the fact that banks are still very selective in granting loans and, on the other hand, because large institutional investors will to a large extent only make acquisitions highly dependent on location and product quality.”
Transaction volume: Slump in investment
• With a CRE transaction volume of EUR 840 million, the result for 2023 is below one billion euros for the first time since 2009 (EUR 740 million). At around EUR 270 million, the 4th quarter was the strongest of the year, but remained 54 percent below the level of the equivalent period the previous year.
• The contribution by international investors was around 47 percent. Montano's largest office transaction of the year at Kölner Strasse 10–12 in Eschborn, sold to French investment manager Advenis for around EUR 70 million in the second quarter contributed to this. In addition, there was a large acquisition in Rüsselsheim in Q4 by Belgian investors.
Yields: Prime yields continue to rise, especially for office properties
• From the end of 2022 to the end of 2023, the prime office yield for core properties in Frankfurt rose by 135 basis points, to the current 4.70 percent.
• The prime yield for commercial buildings in central locations rose by 80 basis points to 4.55 percent. For logistics properties, the prime yield is currently 4.50 percent, 50 basis points above the level of a year ago.
• C&W expects only moderate increases in yields at the beginning of 2024. The uncertainties in pricing processes are expected to decrease and, as a result, transaction activity is expected to increase somewhat again.
Use types: Development plots dominate market activity
• Mixed-use properties and development land accounted for the largest proportion of transaction volume over the course of the year, accounting for 39 percent or EUR 325 million, of which EUR 90 million was contributed by the 4th quarter.
• In the 4th quarter, the Industrial and Logistics sector was the asset class with the highest transaction volume, at EUR 150 million. The sale of more than 700,000 sq m of the Opel site in Rüsselsheim by the Stellantis Group to logistics and commercial real estate developer VGP, which is planning one of the largest commercial space developments in Germany here, contributed to this result. For the year as a whole, acquisitions and disposals totalling EUR 210 million were recorded.
• With a turnover of EUR 210 million euros, office transactions contributed only 25 percent to annual sales. The traditionally strongest asset class in the Frankfurt market area, which has contributed an average of around 79 percent over the past five years, suffered particularly from the effects of higher interest rates and restrictive lending in 2023. This is underlined by the fact that there were no office property transactions in Q4 2023.
• Due to a fall in inflation being forecast for 2024, the first cuts in the ECB's key interest rate are expected from mid- year. This is accompanied by positive signals for an improved financing environment.
