Approximately €16.1 billion was transacted in December alone, the highest monthly volume on record.
Marcus Lemli, CEO Germany and Head of European Investment, at Savills, explains:
“This record transaction volume is all the more remarkable when you consider that product shortage was a dominant issue for investors throughout the year. However, ultimately, it was this very product shortage that contributed to such high investment volumes with prices rising significantly. Other factors included the strong pressure on investors to invest capital and Germany’s continued attractiveness as a safe haven.”
Offices made up almost half (around 48%, up on 44% y-o-y) of the total investment volumes. The retail sector lost further ground and accounted for only 20%, the lowest figure in the current cycle. This was followed by logistics and mixed-use property (each 10%). The latter sector featured two of the largest transactions of the year with the Tucherpark in Munich and the Squaire in Frankfurt. “The office sector is benefitting from favourable rental growth prospects and the fact that most retail properties no longer offer the same level of rental growth potential,” explains Lemli.
Over the full year, office yields hardened by around 20 basis points and prime yields for logistics hardened by 40 basis points to stand at 3.7%. Both sectors witnessed strong rental growth. The values of prime office property across the top seven markets rose by an average of around 15% to approximately €13,500 per sq m. Prime yields for high-street properties stood at 3% at the end of the year (-10 basis points year on year), compared with 3.9% (-10 bps) on retail parks and 4.3% (+10 bps) on shopping centres.
Regardless of the sector, there was a clear investor focus on the top seven German cities, which were responsible for 56% of the overall transaction volume in 2019 compared with a five-year average of 51%.
Matthias Pink, Head of Research for Savills Germany, added:
“The dominance of the A-cities is both a reflection of the high proportion of office transactions and most investors’ continued high risk aversion. The strong pressure to invest is causing investors to prefer high-volume acquisitions. The top seven markets offer the best conditions for this approach. Once again, Berlin and Munich (excluding the surrounding regions) stand out among the top seven cities with transaction volumes of €11.7 billion and €9.4 billion respectively.
“For 2020, we once again expect more capital to be available for real estate than can possibly be invested in Germany. Consequently, with the exception of the retail sector, we anticipate initial yields to continue to harden. Nevertheless, in view of slower rental growth, capital values may no longer rise to the same degree witnessed in previous years, meaning that the transaction volume for 2020 should be somewhat lower than last year. However, the €60 billion mark is likely to be surpassed once again.”