German investment market stays on track in first six months of 2019

The H1 investment tally is inclusive of a 30% year-on-year fall in Q1 volumes in 2019, indicating that big ticket transactions mitigated the overall result for H1, with seven of the 10 largest transactions in the first half of the year were completed in the second quarter.

In JLL’s Investment Market Overview for Q2 2019, the brokerage firm suggested that the investors into the German real estate market remain motivated by risk-free interest rates at close to zero, while rising rents in German offices and housing is still fuelling high return expectations, offsetting economic and political risks. JLL wrote:

“The insurance sector serves as a good example of this trend. The sector has not only expanded its real estate quota in recent years but also intends to increase it further in the near future.  This is also likely to involve riskier investments outside the core property segment. However, investors would be well advised to make themselves aware of the current risk factors and reassess their investment strategy in relation to the different asset classes.

“For example, foreign investors are currently considering whether an investment in residential property in Berlin is still an attractive proposition given the ongoing debate about rental caps, brakes on rent and expropriation.”

The two largest transactions in the period – both above €1 billion – were the sale of a residential and commercial building portfolio by Chinese investment fund CIC to a ZBI Group and Union Investment-led consortium, as well as the sale of 57 department stores by Hudsonʼs Bay Company to the Austrian Signa Group.

The largest single-asset transaction was the €620 million sale of Frankfurter Welle. Overall, single-asset transactions accounted for more than two thirds of the total volume, according to JLL. Portfolio deals gained some ground in the second quarter, with a volume of almost €10.5 billion by the end of the first half. However, this was 28% below H1 2018.

Transaction volumes in Germany’s ‘Big 7’ cities were around €17 billion in H1 with foreign investors slightly increasing their share of the total activity in Q2, accounting for 34% in H1. Domestic investors retained a significant role, responsible for five of the 10 largest purchases in the period.

Market performance was extremely variable depending on the city. While Berlin accounted for six of the 10 largest transactions in the Big 7, corresponding to a total transaction volume of more than €6.7 billion and a 36% increase year-on-year, the decline in volume was most pronounced in Hamburg (-49%) and Munich (-44%).

JLL explains:

“The weaker performance in Hamburg and Munich is by no means owing to a decline in demand. On the contrary, in structured bidding processes there is still fierce competition between investors for the best investment products. In view of the growing pipeline for new office construction projects for this and next year, new and attractive investment opportunities should re-emerge in the office asset class in these two cities.”

james.wallace@realassetmedia.com