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3 August 2018, Europa, Deutschland | Corporate Finance | Neuigkeiten

Office- and Investmentmarket Germany first half 2018

The commentating of the half-year figures of the commercial real estate markets of the German Top 7 locations is without any major surprises, continuously positive, business as usual you could say.

On the office rental market, the take-up has slightly decreased, the vacancy rates have dramatically fallen and the prime rents have continued to shoot up. Even in the location-based analysis, no disruptions that can’t be explained from the local situation can be found.

  • The office take-up volume in the German Top 7 markets is at approx. 1.72 million sqm (decrease of 6.1% compared to last year) and by the end of the year, we estimate approx. 3.55 million sqm.
  • The vacancy rate averaged at 4.23% (decrease of 1% compared to last year); here we expect the vacancy rate to fall below the 4% mark.
  • The prime rents are at approx. 30.04 €/sqm (+4.1% to the first half of 2017), also with an expected increase by the end of the year due to the healthy economic development in Germany, but also due to the growing scarcity in the new-build segment.

On the investment market the signs are pointing towards a “higher transaction volume” and further declining yields. Office was the most sought after asset class with 44%, followed by retail.

  • The German commercial investment market benefited from strong market dynamics, achieving a transaction volume of approx. 25.5 € billion, with 14.7 € billion in the Top 7 locations alone (last year: 25.9 € billion in Germany, 11.4 € billion Top 7). Especially the outstanding volume in the Top 7, which is supported by a huge number of larger single transactions, is to be highlighted.
  • The sustained lack of supply in core office products, lead to further yield compression in the Top 7 to an average of 3.20% (3.43% last year).
  • By the end of the year, office prime yields in some markets are forecasted to decline further, but at a modest rate due to ongoing demand shifts towards B-locations. In general, we predict prime yields to remain stable at this rather low level in the segment of CBD and core office properties, despite a weaker Q4 2018.
  • The current yield gap of approx. 150 basis points between core and value-add shows no signs of market distortion.

But also with a view towards the second half of the year, we see the situation more relaxed than other market commentators. A strong cyclical clouding is currently not to be expected, the classical risks of an advanced market cycle such as abundant building, LTV-quotes or generally irrational behavior of the market participants aren’t arising from the current situation, which has direct effects on the fundamental features of the real estate markets.

At the same time, we see two aspects, which point to a paradigm shift in the fundamental analysis:

  • The strong focus on so-called core-plus or value-add products, which can be explained with an increased risk provisioning in the core-segment. The yield spread between both is still healthy.
  • Many project developments strongly anticipate aspects such as Co-Working and Co-Living, so deviate from the traditional 10-year lease contract doctrine.

For one the statement is: show me the skills of the asset management in order to realize a value increase in value-add, for the other: plots are more compressed, higher and more heterogeneous in this market phase and the use should be chosen accordingly.

If these conditions are given, the market development will remain positive for the next 6 months.

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