P R E S S R E L E A S E COMMERCIAL PROPERTIES 2014: TRANSACTION VOLUME APPROACHES 40 BILLION EURO MARK - Share of foreign investors rises to 46 percent - Portfolio sales nearly doubled - Prime yields continue to soften as a result of high demand Frankfurt, 07 January 2015 The German investment market for commercial real estate saw a turnover of 39.8bn in 2014, the best result since 2007 and a year-on-year increase by a third (30.4 billion euros in 2013). The investment total for the fourth quarter equalled 14.4 billion euros, which implies a quarter-on-quarter increase by 69 percent. This results from an analysis conducted by the real estate services firm CBRE. The accelerating crisis in Russia has had the effect of making Germany ever more attractive for investors. Germany has been and continues to be a safe haven, said Fabian Klein, Head of Investment at CBRE Germany. Germany's robust economic position attracts investors from all over the world. Institutional investors, especially from the Asian region, are becoming more and more active as they reach the limits of their home markets in terms of their investment strategy. Foreign Investors Double Investments Foreign investors invested nearly 18.5 billion euros into the German real estate market last year. Thus, their investments have almost doubled in volume year on year (9.4 billion euros in 2013), which made the share of foreign investors in the overall investment market increase to 46 percent. US investors proved particularly active accounting for a relative share of 14.8 percent in the total transaction volume, as did investors from the United Kingdom (9.5 percent) and France (4.6 percent). At the same time, Asian investors have stepped up their presence on the German market, and now account for approx. five percent of total investments, said Klein. Especially investors from South Korea are active in Germany. However, investors from Malaysia and China also intend to invest large volumes into German properties in order to enhance the diversification of their property portfolios. Despite recently increasing prices, Germany's top markets still offer higher yields than London or Paris, where yield rates have continued to soften lately, said Klein. Meanwhile, the volume invested by domestic players remained at the previous year s level of 21.3 billion euros.
Share of Portfolio Deals Increases to 35 Percent Portfolio deals accounted for a transaction volume of nearly 14 billion euros (35%) in 2014 (25% in 2013). 40 portfolio transactions exceeded a volume of 100 million euros each. During the fourth quarter of 2014 alone, 30 out of 78 large-scale transactions exceeded the volume of 100 million euros each including the sale of the Palais Quartier in Frankfurt to Deutsche Asset und Wealth Management and ECE, facilitated by CBRE on the buyer side. 24 portfolio sales involved international investors. In terms of portfolios with a volume of 5bn the focus clearly was on office properties. However, alongside demand for core properties in the major five investment centres, demand for management-intensive assets in non-core locations also increased. Foreign investors in particular have increasingly opted for portfolio transactions, either by investing directly or by choosing a private equity scheme within the framework of a joint venture, for instance, in order to build up their Germany portfolio, said Klein. Eleven Retail Property Portfolio Transactions in Total The portfolio transactions include among others the Leo I portfolio acquired by Patrizia (18 office buildings in Hesse with a fair market value of approximately one billion euros) and the Domus portfolio in Düsseldorf that Blackstone bought from Portigon AG (former WestLB), facilitated by CBRE on the buyer side. The quarter also saw brisk trade with retail property portfolios with a total of eleven transactions and volumes of more than 100 million euros each. An example is the sale of the Christie shopping centre portfolio, facilitated by CBRE, with properties located in the Greater Berlin and Dresden areas by a joint venture of Morgan Stanley Real Estate Investing (MSREI) and the Hamburg-based asset manager REDOS Real Estate. Further large-scale transactions included the Sokrates portfolio with ten real,- superstores purchased by Metro, the Aldi-Süd portfolio with 69 properties that GIG Grundbesitz purchased from the US asset manager Blackrock, and the acquisition of the Taurus supermarket portfolio by the real estate subsidiary of the US financial group Prudential Pramerica Real Estate Investors in a joint venture with the Third Swedish National Pension Fund. In the hospitality sector portfolio sales accounted for approx. one third of the entire transaction volume including a portfolio of 67 assets that Moor Park Capital Partners sold to Accor. The logistics sector, which is characterised by a growing investor interest in light industrial properties, also registered an increase in the number of portfolio transactions.
Office Remains the Property Investment of Choice while Logistics and Hotels Increasingly Gain in Importance As in previous years, office properties continued to dominate German real estate investments in 2014 with a total volume of 20.3 billion euros and a market share of 51 percent. Compared to the previous year, the capital invested into office properties approximately increased by a third. Retail properties were the second most important asset class with an investment total of approx. 9.2 billion euros and a share of 23 percent (20 percent in 2013). Investments into logistics properties (3.3 billion euros, +54 percent) and hotel properties (3.0 billion euros, +74 percent) remained high in 2014. These two asset classes account for a share of eight percent each in the overall investment market. With large-scale portfolio transactions being transacted across Germany, the share of the top five markets declined from 55 to 48 percent. However, the absolute transaction turnover still saw a year-on-year increase by 15 percent to a total of 19.3 billion euros. After an extremely strong final quarter with a turnover of 5.1 billion euros (+40 percent year-on-year), Frankfurt emerged as the most sought-after market among the top five markets. Next in line was Munich with well over 5 billion euros (+6 percent), ahead of Hamburg (3.6 billion euros, +26 percent) and Berlin (3.55 billion euros, +7 percent). At just under 2 billion euros, Düsseldorf reported an above-average result, even though it marked a 10-percent decline year-on-year. Great Variety of Investors With investments of 9.5 billion euros or a share of nearly 24 percent, asset managers/fund managers were the most active investors in 2014. Compared to the prior year, they invested an additional 6 billion euros. Next in line were open-ended property funds/institutional funds with investments of nearly 7.8 billion euros or a share of 19.7 percent. Listed real estate companies and REITs accounted for 5.5 billion euros, representing a share of around 13.7 percent. Insurance companies, pension funds and corporates claimed a share of ten percent each (4.1 billion euros). By contrast, closed-end real estate funds invested a mere 1.4 billion euros. Yields Remain under Pressure Surplus demand in the core segment has continued to put initial yield rates under downward pressure in the office and large-scale retail segments. The yield rate, which continues to exceed the reference interest rate of risk-free alternative investments, keeps attracting the interest of domestic and international real estate investors for commercial properties in
Germany, said Klein. A yield gap of almost four percentage points by year-end has motivated a continued influx of institutional capital into the German real estate market. Prime yields (net initial yields) in the office segment softened slightly quarter-on-quarter, and currently equal 4.55 percent in Berlin, 4.60 percent in Frankfurt (-10 basis points each), 4.40 percent in Hamburg and 4.30 percent in Munich (-15 basis points each). In Düsseldorf, the net initial yield rate for prime office properties in prime locations remained stable at 4.70 percent quarter-on-quarter, but there are signs suggesting a further decrease of initial yield rates towards the middle of the year. The alternative strategy of focusing on non-core locations has simultaneously led to a yield compression in the secondary market segment in the top cities. Prime yields in the retail segment have also come under pressure. However, net initial yield rates for prime shopping centres in Germany's top markets remained stable at 4.50 percent quarter-on-quarter. Due to the investors alternative strategies, yield rates for comparable products in prospering regional centres dropped by 20 basis points to 5.10 percent compared to the third quarter, said Klein. As high demand is significantly outstripping supply in the retail warehouse segment, yields have significantly decreased. Here, net initial yields stood at 5.70 percent by the end of the year (-20 basis points compared to Q3 2014). The prime yield rate in the retail warehouse/supermarket segment is at 6.50 percent (-40 basis points). Keen demand for logistics properties has also put pressure on net initial yields in this segment, however it remains stable at 6.00 percent in prime logistics centres. The prime yield for prime properties in the hotel segment has also remained stable at 5.25 percent compared to the previous quarter. Good Prospects for Sustained Investment Activity in 2015 The outstanding investment year of 2014 will maintain its brisk momentum in the coming year, as globally active investors will increasingly restructure their portfolios in favour of real estate, said Jan Linsin, Head of Research at CBRE Germany. We have noted a greater risk tolerance among investors. They are increasingly interested in property developments and properties located in peripheral locations. Moreover, many investors are willing to consider prime products in B-locations as alternatives as they offer more attractive yield opportunities than metropolitan core investments. However, yields are also coming under pressure here. There is also a mounting interest in non-core investments including portfolio transactions. Thus, we expect to see an investment volume of 38 billion euros in 2015, said Linsin.
Investment transaction volumes in Germany (commercial real estate) Source: CBRE Research 2015 Yield spread office property vs. 10-year German government bond (Bund) Source: CBRE Research 2014
CBRE Germany Immobilieninvestmentmarkt Deutschland Real estate investment market in Germany Stand / As of: 31.12.2014 2013 (Mio. ) 2014 (Mio. ) Veränderung J/J in % % Change Y-o-Y Gewerbeimmobilien gesamt / Commercial properties total 30.400 39.800 31 davon in Top 5* / thereof Top 5* 16.771 19.279 15 Anteil Top 5 am Transaktionsvolumen (Gewerbe) Percentage Top 5 of total investment volume (commercial prop.) 55% 48% Transaktionsform / Transaction type Portfolios 7.450 13.999 88 Einzelassets / Single assets 22.950 25.801 12 Nutzungsart / Type of use Büro / Office 15.350 20.282 32 Einzelhandel / Retail 8.665 9.170 6 Lager/Logistik/Produktion / Industrial & Logistics 2.155 3.326 54 Hotel 1.727 3.001 74 Sonstige Nutzungen / Others 1.436 2.897 102 Entwicklungsgrundstück / Development Site 1.068 1.124 5 Ausländl. Investoren / Foreign investors 9.356 18.494 98 Anteil am Transaktionsvolumen (Gewerbe) / Percentage of total investment volume (commercial prop.) 31% 46% Inländl. Investoren / Domestic investors 21.044 21.306 1 Wohnportfolios (ab 50 Wohneinheiten) / Residential portfolios (50 and more residential units) 13.789 13.343-3 Investmentvolumen insgesamt / Total investment volume 44.189 53.143 20 *Berlin, Düsseldorf, Frankfurt, Hamburg und München Source: CBRE Research, 2015
Top 5 investment markets (commercial real estate) Investment volume ( million) Share of foreign investors Prime Yields (Office, net) 2013 2014 Y-o-Y 2013 2014 Q4 2013 Q4 2014 Berlin 3,328 3,553 7% 34% 36% 4.75% 4.55% Düsseldorf 2,195 1,969-10% 45% 43% 4.80% 4.70% Frankfurt 3,634 5,093 40% 31% 34% 4.70% 4.60% Hamburg 2,878 3,634 26% 22% 48% 4.65% 4.40% Munich 4,735 5,030 6% 35% 28% 4.55% 4.30% Source: CBRE Research, 2015 About CBRE Group, Inc. CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com. Contact: Fabian Klein Dr. Jan Linsin CBRE GmbH CBRE GmbH Head of Investment Germany Head of Research Germany +49 69 17 00 77 55 +49 69 17 00 77 663 fabian.klein@cbre.com jan.linsin@cbre.com Follow us on Twitter: @cbregermany