German hotel investment sees strong 1Q
According to real estate consulting firm Colliers International, the German hotel investment market carried over last years strong momentum into 1Q15. Transaction volumes surpassed &euro;617mn recording a YoY increase of 174%. The strong figures have been attributed primarily to a number of large-volume portfolio deals, hotel packages valued at c &euro;450mn changed hands, with single hotel deal accounting for the remaining &euro;167mn. The dominance of of non-German investors decreased in the quarter at just 52% versus slightly more than two-thirds in 1Q14.Based on the strong start to the year and deals pending, transaction volumes are expected to reach, or even surpass &euro;3bn this year.Further details are given in the linked article
Germany

German commercial investment market continues strong upward trend

According to real estate consulting firm Colliers International, German commercial investment market transaction volume came to slightly more than €9.7 billion during Q1, matching its excellent Q1 results from the previous year. Slightly less than €3.2 billion, or one-third of total capital invested, was poured into real-estate portfolios. Five shopping malls, Boulevard Berlin, Centrum Galerie Dresden, Forum Duisburg, Königsgalerie Duisburg and Arneken Galerie Hildesheim, with a combined value of €1 billion, accounted for the largest share of transaction volume. The five malls were purchased by French shopping mall investor Klépierre , who is new to the German market, within the scope of acquiring their Dutch competitor Corio.Ignaz Trombello MRICS, Head of Investment at Colliers International Germany, says, “In Europe, Germany is the most important real-estate investment market following the UK. Compared to other countries, Germany boasts an excellent mix of prime real-estate locations and attractive secondary locations. And supply in the different property and price categories remains high despite the scarcity in core asset classes. This is an important aspect for investors from Germany and abroad when it comes to deciding to buy property in Germany as opposed to other countries. The German investment market is currently benefitting from Germany’s economic prowess and, in particular, from the upward trend on the leasing markets. Another plus point is that in an international comparison Germany partially still offers higher potential yields than Asian metropolises, for example.”Slightly more than 42% (approx. €4.1 billion) of total capital invested in Q1 came from investors outside of Germany. This share is expected to increase in view of the number of already existing investors and the large number of new investors on the German market. Due to Klépierre’s takeover of Corio, most capital invested in German commercial real estate to date has come from French investors. Investors from the UK invested slightly more than €1 billion and investors from the US slightly less than €600 million. Asian investors poured a total of roughly €560 million into the German commercial market.Special real-estate funds managed by numerous institutional investors were among the most active buyers. Together with open-ended real-estate funds, they generated total investment volume of slightly below €2.1 billion, accounting for a 21% market share. They were followed by real-estate companies (€1.2 billion) and asset and fund managers (€1.1 billion).“In addition to the sale of the shopping mall portfolio mentioned above, large-volume single and package transactions involving specialist stores and specialist store portfolios contributed to a transaction volume for retail properties in the amount of €3.6 billion, reflecting a market share of around 37%. This is significantly higher than in previous years,” says Mr. Trombello. Other large-volume deals worth mentioning in the current year include the sale of a supermarket portfolio comprised of 107 supermarkets, which was purchased by Patrizia from Eurocastle , a Fortress subsidiary, for €286 million and a package deal consisting of 56 retail properties that was bought by Redefine Properties for €157 million. Despite these numbers, retail properties did not quite make first place. Around €3.9 billion, or 40% of total market share, was invested in office properties in Q1. Unlike the activity we saw in the retail segment, the office segment was dominated by single deals in the first three months of the year. The Norrporten portfolio in Hamburg was the only deal to make the top 10 with a transaction volume of roughly €140 million. Hotel properties got off to a good start, generating transaction volume of more than €600 million and putting them in third place in terms of investment volume. This can particularly be attributed to the sale of one portfolio. The French REIT, Foncière des Murs, purchased 22 B&B hotels from B&B shareholder Carlyle for €128 million.Andreas Trumpp MRICS, Head of Research at Colliers International Germany, says, “The below-average supply of new buildings becomes apparent when analyzing property types. Almost 80% of the properties sold in Q1 were stock properties. Due to the relatively scarce supply of project developments on the market, a growing number of investors are becoming interested in forward deals. This type of deal structure allows investors to secure properties even before any of the space has been leased.”“Almost all of the seven top real-estate hubs in Germany recorded significant increases in activity in Q1 year over year. Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart posted a combined transaction volume of more than €4.7 billion. This reflects roughly half of the Germany-wide Q1 investment volume and an increase of around €1 billion, or 29%, year over year,” says Mr. Trumpp.The highest transaction volume of €1.1 billion with a similar number of recorded transactions was registered in three cities with Munich posting a wafer-thin lead over Berlin and Frankfurt. These three real-estate hubs were able to significantly outperform previous year results for the most part. The largest properties changing hands at these locations within the scope of single and portfolio deals included the above-mentioned purchase of Boulevard Berlin, the Westend Ensemble in Frankfurt am Main, which was sold to a German investor group, and a deal signed for the new Brainlab headquarters in Munich, which was purchased by a WealthCap fund at the beginning of the year from developers Wöhr + Bauer. In Hamburg, the sale of commercial properties and lots generated around €750 million, reflecting a significant increase of 30% compared to the previous year. In addition to the above-mentioned sale of the Norrporten portfolio, the partial sale of the Axel Springer building complex to the Free and Hanseatic City of Hamburg for slightly below €131 million accounted for a considerable portion of total transaction volume. Cologne recorded the steepest increase in transaction volume. A total of €286 million was invested there in Q1, reflecting a year-on-year increase of 165%. The purchase of the Kalk Karree by Bayerische Ärzteversorgung and the Triforum by Internos accounted for a large share of this result. Stuttgart and Düsseldorf recorded a transaction volume of €182 million and €180 million, respectively, putting them at the bottom of the list. While Stuttgart recorded a year-on-year increase of 14%, Düsseldorf’s transaction volume recorded a steep drop by two-thirds due to last year’s high-volume sale of Herzogterassen, which generated an extremely high result in the previous year.“Ongoing strong demand once again led to a slight yield compression in the core segment. Due to ongoing strong demand for these properties, average weighted gross initial yield for prime office properties recorded a drop compared to the previous quarter of one basis point and by eleven basis points to 4.57% year over year. The noticeably increasing interest in real estate in the value-add segment and in secondary locations has led to an adjustment in yields in these areas as well,” states Mr. Trombello.The most active buyers in the core and core plus segments are German investor groups and, among these, insurance companies and pension funds, in particular. For these investors, real estate is basically the only asset class to exhibit a reasonable profit-risk ratio. Mr. Trombello says, “The competition for the few core properties is not going to get any less. This can primarily be attributed to the fact that a number of Asian investors are currently looking for large-scale investment opportunities for which they are willing to pay premium prices. We are still seeing bottleneck supply. On the one hand, the supply of new buildings is limited due to low completion rates, and, on the other, many owners of prime properties are currently not looking to sell. They could get excellent prices for their properties at the moment. If they did sell, however, they would face the same problem as many investors: a lack of investment alternatives.”“That’s why an increasing number of investors are moving into the value-add segment. Portfolios throughout all property types are currently experiencing a renaissance as well. The tendency toward taking risk is significantly lower than in 2006 and 2007 and the use of own capital is higher. Additionally, checks have been intensified and investors are not buying without reason. That’s why we believe that the German real-estate market is not running the risk of creating a bubble. Overall, we expect transaction volume in Q2 to be very high as well. Many transactions are about to be signed and a number of owners are willing to sell due to the excellent market environment. This will not only lead to increased supply but also to higher transaction volumes,” concludes Mr. Trombello.