German office investments total €20b

In the first three quarters of 2018, the transaction volume on the investment market for German office real estate rose 5 percent in a year-on-year comparison. A sum total of €20.14 billion ($23.15 billion) was invested. This is a conclusion drawn in a current analysis prepared by the global commercial real estate services company CBRE.

“The demand for German office real estate continues to run at a high level, as recently demonstrated by the third quarter that saw numerous major deals,” said Fabian Klein, head of investment at CBRE Germany.

“Strong demand and limited supply resulted in further yield compression. The average prime yield in the top locations edged down again by 11 basis points to 3.10 percent. Market activity is focused on the Top 7 locations and single asset transactions, both of which are a sign of supply shortage,” Klein explains. “A dynamic year-end quarter may well produce a new record volume, also in terms of the full year — upward of €28 billion ($32 billion),” predicted Klein.

Many large-scale deals determine the market

Major transactions dominated the office investment market in the first nine months when 58 transactions took place above the €100 million ($115 million) mark. Taken together, these investments amounted to almost €12 billion ($14 billion). The share of portfolio transactions dropped by around 4 percentage points to 11 percent. Similar to the overall commercial investment market, market activities focused on the Top 7 locations (82 percent of the transaction volume), where 48 deals were attributable to the category above the €100 million ($115 million) mark. Frankfurt alone accounted for 26 percent of the entire office investment volume.

International investors less strongly represented due to short supply

Despite the unabated interest in German office real estate, international investors concluded less deals than in the previous year’s period (43 percent of the investment volume, down 9.4 percentage points). This shift is due, on the one hand, to the lack of the core properties generally preferred by international investors and, on the other, to German investors’ better experience of the market and decision structures that allow them to make swifter decisions with some deals. The interest of international investors in German office real estate nevertheless remains strong. In the first three quarters, investors above all from European countries outside Germany (17 percent of the overall volume), from North America (12 percent) and Asia (3 percent, here mainly from Singapore and South Korea) acquired German office real estate.

German office investment market in a y-o-y comparison