International real estate consultancy firm Cushman & Wakefield (C&W) recorded a transaction volume of EUR 5.61 billion in the commercial real estate investment market in Germany in Q1 2024. Compared a year earlier, the result shows a slight increase of 10 percent. However, transaction activity remained generally subdued and transactions involving high-priced core properties were rare.
In Q1, the commercial real estate investment market was again overshadowed by persistently high borrowing rates and a weakened economy. Institutional investors were still very cautious on the buyer side. Especially for risk-averse investors, there is currently no alternative to the risk-return ratio of government bonds with long-term maturities.
Alexander Kropf, Head of Capital Markets Germany at C&W, explains: “The first quarter was dominated by market stabilisation, although the situation on the financial and capital markets remained largely unchanged and continued to be challenging, especially for institutional investors. In the core segment, the long-awaited price and yield stabilisation that has now occurred is likely to be further consolidated. On the seller side, too, we are noticing an increasing acceptance and willingness to sell at new realistic purchase prices.”
Helge Zahrnt, Head of Research & Insight Germany at C&W, concludes: "In view of the poor economic outlook and the sharp decline in inflationary pressure, a first key interest rate cut seems very likely from mid-2024. With this, as well as falling bond yields and consequently a predictable and reliable financing environment, we expect stronger transaction momentum in the second half of the year."
Transaction volume: Volume at the start of the year with a slight increase in sales
- For the first time since Q3 2022, the investment market recorded a positive year-on-year result, with transaction volume rising 10 percent, while in the preceding quarters there had been severe declines of up to 72 percent.
- At EUR 5.61 billion, however, this fell far short of the Q1 5-year average of EUR 12.41 billion.
- Around 72 percent of the total transaction volume was achieved via individual property transactions (EUR 4.03 billion). There was, however, a significant increase in portfolio transactions, which totalled EUR 1.58 billion. Last year at this point, only EUR 630 million was attributable to parcel sales.
- The largest portfolio transaction of 2024 so far, at over EUR 300 million, is the 90 percent sale of five logistics properties by a Swiss Life and Beos joint venture to LaSalle Investment Management.
- By contrast, the transaction dynamics of individual property transactions have not changed significantly and are roughly at the level of the previous quarters. There is still a lack of large-volume sales above the 100-million-euro mark. The sale of the mixed-use Fünf Höfe property in Munich by Union Investment to the Strüngmann family's Athos family office for more than EUR 700 million is an exception here, and was also the largest deal of the first quarter.
Yields: Yield increase phase overcome
- The first price and yield stabilisation tendencies in the core segment were already evident at the end of 2023 and continued in Q1 2024. For the first time since Q2 2022, there was no further increase in yields in the three main property use categories office, retail and logistics.
At the end of Q1 2024, the average prime office yield for core properties in the top-7 markets was 4.78 percent, as it was at the end of 2023. Compared to Q1 2023, the average prime yield has increased by 95 basis points. - Munich and Berlin currently have the lowest prime office yields of 4.60 percent. This is followed by Hamburg and Frankfurt at 4.70 and 4.75 percent respectively. Prime office yields at the end of the 1st quarter were highest in Düsseldorf and Cologne, both at 5.00 percent.
- At the end of Q1 2024, the average prime yield for city centre high street commercial buildings was 4.49 percent, also unchanged at the level of the previous quarter. At the same juncture last year, the prime yield was 3.99 percent.
- The average prime yield for logistics properties also remained unchanged at 4.50 percent, which is on a par with the previous quarter. In Q1 2023, the prime yield was still at 4.15 percent.
- By the end of 2024, C&W expects prime yields to stabilise further across all asset classes.
Property sectors: Logistics and industrial properties as well as mixed-use properties with high transaction volume
- Logistics and industrial real estate further consolidated its position as having the highest transaction volume in the CRE investment market, achieving a transaction volume of EUR 1.61 billion (29 percent CRE total). Compared to the previous year, transaction volume more than doubled (+103 percent).
- This was mainly due to five portfolio transactions in excess of EUR 100 million. In addition to the 90 percent sale of five logistics properties to LaSalle Investment, the sale of Blackstone's European portfolio, consisting of six properties in Germany, to Clarion Partners for around EUR 170 million contributed significantly to this result.
- Office transaction volume was EUR 965 million in Q1 (17 percent of CRE total), almost 8 percent less than in the equivalent period last year. The continuing reluctance of institutional investors to buy and sell remains a salient factor in the office sector, in particular there was a lack of large-volume transactions in the three-digit-million-euro range. The clear majority of transactions involved properties with a volume of less than EUR 50 million with a clear focus on value-add and core-plus risk categories. In Q1 2024, core properties accounted for only 5 percent of total office transaction volume. In the 1st quarter of 2023, the proportion was still around 28 percent.
- Retail real estate transaction volume amounted to around EUR 765 million in Q1 (14 percent of CRE total). Compared a year earlier, this represents a decline of around 51 percent. In contrast to last year, there has been a lack of revenue-driving portfolio transactions. The largest and only portfolio purchase to date was the acquisition of a total of eight supermarkets and DIY stores for EUR 200 million by ORES Germany.
- Among the other use categories, with a total transaction volume of around EUR 2.01 billion, high-street mixed-use commercial properties with a focus on retail was particularly strong. Two major transactions in Munich stand out. The Strüngmann family's Athos family office acquired Five Courtyards in Munich from Union Investment for over EUR 700 million and Commerz Real secured Maximilianstrasse 12–14 in the city centre from the Centrum Group for over EUR 200 million.
- Overall, the transaction volume of mixed-use properties totalled around EUR 1.4 billion, compared to only just under EUR 300 million a year ago.
- Hotel transaction volume was around EUR 260 million, an increase of almost 40 percent compared to the first quarter of 2023.
Top-7 markets: Munich and Berlin contributed more than half of the top-7 volume
- CRE transaction volume in the top-7 market areas totalled around EUR 2.78 billion, which corresponds to 50 percent of the national total. Compared to the previous year, this represents a slight increase of around 6 percent.
- The seven German office stronghold cities continue to be favoured for office investment. Around EUR 700 million of the total office transaction volume of EUR 965 million, some 73 percent, is attributable to these markets, rising from only 57 percent a year ago.
- By far the highest transaction volume was achieved in Munich, at EUR 1.24 billion, followed by Berlin with just under EUR 530 million. The two markets areas with the lowest transaction volumes are Cologne (EUR 95 million) and Stuttgart (EUR 60 million).
- With the exception of Berlin and Stuttgart, all markets also recorded transaction volume increases ranging from 13 percent in Düsseldorf to 146 percent in Munich.
