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Germany firms up – expect €70 bn full-year volume

Germany Q3, 2020. Source: CBRE

More than €56 billion was spent on property assets in Germany during the first three quarters of 2020, an increase of 11% compared with the same period in 2019.

According to CBRE the country has “firmed up its position”, as the second largest real estate investment market after the US.

Despite the overall increase, the consultant points out that in Germany’s top seven markets investment volumes fell by 11% to €24.2 billion in the first three quarters. However, this is explained by the scarcity of core properties in which to invest owing to the greater demand by both domestic and international real estate investors in times of crisis.

There were 106 deals on properties valued at €100million-plus in the first three quarters of 2020. These had a total price of €34.2 billion.

High net worth institutional investors, such as open-ended real estate funds, special funds and insurance companies, were particularly active. “Germany’s real estate market is seen as an anchor in turbulent times,” Jan Linsin, head of research at CBRE Germany explained.

Foreign investors committed €10 billion more to German real estate in the current year than they did in the same period last year.

Overall, there is a great deal of repressed capital held by collective investment vehicles that want to acquire property in Germany, CBRE said. But investors are focusing increasingly on core and core-plus products with long leases in place as well as tenants with excellent credit ratings, and supply cannot keep up with demand.

“Ultimately because of this demand we are not seeing any Corona discount for good properties – instead some asset classes are experiencing a further squeeze on prime yields,” Linsin said.

The end of the third quarter saw slight yield compression compared with the previous quarter for office properties in Munich and Berlin, and modern logistics buildings. The prime yield for logistics properties is now 3.55%. Office properties in the top seven locations command an average 2.85% – from 2.55% in Munich to 3.1% in Cologne.

Linsin said: “We are expecting Germany to continue its sustained economic recovery, which is also corroborated by a large number of leading indicators, confidence surveys and high frequency data, despite [Covid-19] infection rates that recently began to rise again.”

He said a transaction volume significantly above €70 billion can be expected by the year end.