Commercial property investments soar in Germany’s “Big Seven” cities
Investments in commercial property for sale in Germany have soared in 2015, beating last year’s figures by 50% already. By October 2015, €38.1 billion had already been invested compared to €39.8 billion for the whole of 2014 according to CBRE. Property in the country is particularly popular with foreign buyers who made up 53% of all transactions between January and September while portfolio investments represented 37% of the total investment volume.
The most popular commercial property types are offices (40% of all commercial investments), retail space (35%) and manufacturing/warehouse facilities (8%). These premises have maintained their ranking since 2014. However, the attraction of offices is waning as more buyers invest in retail property. Last year, 45% of investments went to office space while retail only made up 21% according to Savills, an international real estate group.
The most popular destinations are Germany’s "Big Seven": Berlin, Hamburg, Düsseldorf, Cologne, Munich, Frankfurt am Main and Stuttgart. Together, they generate more than half of all transactions on the market. These large cities are recognised as established markets where property has higher liquidity and demand is strong.
|City||Population, mln||Unemployment, %||Purchasing
|Frankfurt am Main||110.5||24,897|
The Era of Office Space
Germany’s offices are the most popular target for investors, composing 40% of all commercial transactions, thanks to the positive economic situation. It is the strongest economy in Europe and has the lowest unemployment rate in the EU. As of September 2015, unemployment was only 6.4% nationwide and experts forecast that it will continue to decline — bringing the active German population to 31.33M in 2016 from 30.8M in 2015 according to the Institute for Employment Research (Institut für Arbeitsmarkt und Berufsforschung).
Rental demand: Frankfurt am Main is the country’s largest office market and the city is already home to the European Central Bank headquarters, the German Federal Bank (Deutsche Bundesbank) and the country’s largest stock exchange: Frankfurter Wertpapierbörse (FWD). Here, rental demand comes from banks and financial institutions, while Berlin attracts the IT sector, trade and the F&B (food and beverage) industry go to Düsseldorf and commercial production is more likely to set up shop in Munich or Stuttgart. Cologne, on the other hand, attracts NGOs, including charities.
Price dynamics: office property prices have grown in all of the “Big Seven” except Düsseldorf between Q2 2014 and Q2 2015. The strongest growth has been witnessed in Munich (15%), Berlin (12%) and Frankfurt (10%).
Rent dynamics: rental rates have remained relatively stable over the last decade: premium office property in Germany is let for
Yields in Germany have been falling over recent years because rental rates have remained stable while property prices are increasing. Currently office property in the “Big Seven” earns about 4% per annum, and up to 10% in the case of subprime investments.
Returns: taking into account the price growth per square metre, total returns can reach
Occupancy in the “Big Seven” is traditionally high at approximately 90% on average. Vacancy rates in office property are declining annually and dropped from 8.9% in 2011 to 6.1% in the first half of 2015 according to Colliers. In Berlin, occupancy has risen from 91.1% to 95.7% over the same period.
Lease contracts. Typical lease periods extend from five to ten years and are commonly ruled by the Dach & Fach contract under which the lessee is responsible for the roof and supporting structures of the building. Despite the broad range of maintenance obligations imposed on the lessee, the owner is still liable in part for repairs.
|Yields, %||Rental rates||Selling price|
Retail Property forges ahead
Investments into retail property reached €14 billion between Q1 and Q3 2015, almost twice as much compared to the same period last year, according to CBRE. Foreign investors were responsible for about half of these transactions. Approximately €8.6 billion of all investments were directed towards retail portfolios, of which seven deals at approximately €250 million each and a €2.8 billion deal for 40 Kaufhof stores according to the Germany Market Report: Retail Q3 2015 by Colliers.
Rental demand: retail property is in demand in cities with high levels of tourist activity throughout the year like Berlin, Munich, Düsseldorf and other large cities. In Q3 2015, shopping centres constituted the highest number of retail property transactions (44%), retail parks and
|Munich||Kaufingerstraße / Marienplatz|
Budget: premium segment lettings in city centres (
Rent dynamics: in Q2 2015 rental rates in the “Big Seven” were relatively stable, showing a slight increase in some cities. Average rates for premium segment lettings range from €250 to €360 per square metre per month. The highest rates in the retail segment are found on Munich’s Kaufingerstraße and Marienplatz.
Yields: average yields for premium
Lease contracts. Rental contracts are usually made for
|Premium segment yield, %
|Yield spread, %
|Premium segment rental rate,|
EUR/sq m per month
|Rent dynamics, %
Industrial and warehousing property
The logistics industry is growing constantly and demand for industrial warehousing property is the highest in Europe thanks to Germany’s position as a European crossroads and its
Budget: warehouse prices vary from €25,000 to tens of millions of euros.
Rental demand: the most popular markets are Berlin, Hamburg, Düsseldorf, Munich and Frankfurt. The
|Minimum ceiling height,
Due to the particular role of Germany in the logistics industry, Tranio has noted stronger demand for buildings meeting specific requirements in terms of surface area and amenities. It is also crucial for this property to have strong transport infrastructure nearby such as rail freight transport facilities and major roads.
Yields of 6% on average make this segment a higher earner than other property types.
Price dynamics: prices are stable in most cities. Prices per square metre vary from €20 in Erfurt to €350 near the Munich international airport according to JLL.
Rent dynamics: in line with market trends, rental rates remained stable during Q2 2015 ranging from €4.7 to €6.5 per square metre per month.
Lease contracts. Rental contracts are established for
EUR/sq m per month
|Annual rent dynamics, %
What to expect in 2016
Germany’s GDP is expected to grow until 2020 as unemployment rates continue to decrease and household incomes rise. These parameters are good indicators of positive market conditions for investing into commercial property. However, growing property prices and stagnant rental rates are having an adverse affect on commercial yields, which are currently declining. Nevertheless, the stability and economic efficiency of the EU’s leading nation has kept investors interested despite lower yields and occupancy rates remain optimal.
Yulia Kozhevnikova, Tranio