After this unexpected spring break with double-digit temperatures, it is time to send you our latest Catella investment analysis of the 76 German office locations. Especially since our analysis is also based on double-digit results.
Once again, we have analysed the office markets of the location/space categories A to D in our study, which is unique in Europe in this respect. The variables prime rents and prime yields as well as the respective 6-month trend provide a very detailed picture of the current positive state of the German office markets and an ideal overview of the competitive conditions of the 76 markets, visualized in the thematic map as well as in the Catella Risk-Return Profile 2019.
First of all: Never before have the yield swings in the C- and D-locations been so large. This is mainly due to the transactions occurring there. Over the course of 2018, a new dynamic could be observed here, which is ongoing in this year. However, it also remains clear that the majority of transactions, with a more linear yield development, will continue to be reserved for A- and by far B-locations.
- The strongest rent increase in the past 12 months can be found again in the 7 A-locations with +5.7% to an average of € 31.04/sqm. The locations in the C-category have achieved an almost analogous increase and are thus overtaking the B-locations in our analysis for the first time ever. The top rents of the 30 C-locations have risen compared to the previous year by an average of 5% to currently 13.35 €/sqm. Above-average growth rates in cities such as Braunschweig, Bochum and Mönchengladbach are particularly noticeable here.
- However, the 13 B-locations also have increased more significantly than before by 4.1% and achieve a top rent of 15.54€/sqm on average. The increase in rents, on the other hand, is somewhat slower in the D-locations. Some locations are stagnating at the level of the previous year, but cities such as Bamberg, Halle (Saale) and Salzgitter are also achieving double-digit growth. On average, the prime rent level of these 26 locations has risen to currently €10.48/sqm (+1.7 %).
- The current leader in office rents is Frankfurt with €42.00/sqm - we see the lowest measured value in Gera in Thuringia with € 7.50/sqm.
- With an average prime yield of 3.06% in the 7 A-locations (-24 basis points compared to the previous year), this category is approaching the 3% threshold. However, we have found a lower yield compression here than in the previous year's analysis (-37 basis points). A clear indication that investors are aware of the "high price investments" in the central locations in the A-locations and are acting very rationally. Nevertheless, a switch towards value-add investments and a leap to another location category can be observed.
- This is also confirmed by the figures when looking at the other location categories: this time, it is the 26 D-locations in our analysis with the strongest decline in returns within Germany, albeit with a smaller number of cases. Here, the average prime yield declined by 28 basis points to currently 6.70%. In 2017, the smallest yield change was still measured in this location category.
- The yield compression at the B- and C-locations has been almost identical over the last 12 months (-27 bp and -26 bp respectively). However, the yield gap between the two categories has narrowed further and is currently only at 83 basis points (91 basis points in the previous year). Investors are proceeding here with a balanced understanding of risk/return and are mainly focusing on a sustainable cash flow from their investments.
- The top performers of the A-locations are Berlin and Munich with 2.8% and 2.9% respectively, the highest measured value is achieved in Solingen and Wilhelmshaven (8.0%), followed by Weimar and Siegen with 7.4% each.
An analysis of the differences between the individual location categories A to D shows that the gap in the average yields continues to decline. This is an indication that the risk parameters and investor profiles from core to value-add to opportunistic are increasingly becoming blended.