German office investment continues to be strongest asset

The high transaction level achieved on the commercial property investment market in Germany held steady in first-half 2018, with an investment volume of roughly €25.3 billion ($29.36 billion), according to CBRE. This signifies a marginal decline of 2 percent in comparison with the previous year, which is, however, no indication of a downtrend.

The German office market was the strongest asset class, totaling 48 percent, especially in the top seven markets, totaling 69 percent.

Investment activities in the top seven locations increased substantially, with €14.6 billion ($16.94 billion), up 28 percent, being invested than in the first six months of 2017.

“Investor interest in the German commercial real estate continues to run at a high level, as shown by the high transaction volume and yield compression,” said Fabian Klein, head of investment at CBRE Germany. “International investors have, however, clinched deals less frequently in first-half 2018: firstly, because there are fewer core properties — a segment that is of general interest to them — in the market and, secondly, because more German investors, under pressure to invest, are now increasingly prepared to accept the price competition for the objects that are available.

CBRE predicts investment activities will remain lively and estimate a transaction volume around the €50 billion ($58 billion) mark for the full year.

The German commercial investment market, with its polycentric structure and positive economic fundamentals, has lost none of its attraction. Economic growth and falling unemployment guarantee sustained demand on the part of commercial real estate users.

Land for future commercial property is also becoming increasingly important. Given the supply shortfall in the investment market, strong user demand for commercial real estate — coupled with the yield opportunities that property development offers — the significance of land transactions is growing in the commercial real estate investment market. The transaction volume soared by 106 percent to €1.3 billion ($1.5 billion) in a year-on-year comparison as a consequence. Investors and developers can benefit from the rising rents that can be commanded from contemporary space upon completion. Despite higher construction prices, land primarily for future use as office space in the investment centers was acquired. Land outside the urban areas is also in demand for commercial real estate, mostly for the development of future logistics properties.

Top 7 investment markets (commercial real estate)