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MAPIC, Cannes

Real estate investors remain attracted to German retail properties


• Jones Lang LaSalle: Transaction volume in first nine months of 2011 up approx. 40 percent on previous year at EUR 8.4 billion
• At 57 percent in the first three quarters of 2011, the share of international retailers renting space in prime German rental locations reached the highest percentage ever.
• New Germany shopping streets compendium “Retail City Scout Germany” now available for free download from
www.joneslanglasalle.de
• Map of over 300 shopping streets in more than 160 German cities includes tenants, addresses, rents, population figures and purchasing ratios
 
Cannes 17th November, 2011 – Retail properties remain the strongest asset class in the German commercial real estate market also after the end of the third quarter. According to Jones Lang LaSalle, the transaction volume totalled roughly EUR 8.4 billion at the end of September. This represents almost half of the total commercial property transaction volume in this period. The volume achieved over the first nine months of the year already exceeded the total annual results of the years from 2008 to 2010. The survey covers all asset classes, from commercial buildings to shopping centres and department stores to retail warehouse products.

Investors focus on shopping centres

Investor demand continues to focus on shopping centres. This segment accounted for almost EUR 3.6 billion and included four of the five single most important transactions, such as the sale of an investment in Skyline Plaza in Frankfurt at roughly EUR 290 million and the acquisition of an investment in Pasing Arkaden at approx. EUR 175 million. Accounting for 30 percent of the total retail transaction volume, downtown commercial buildings and department stores ranked second, followed by retail warehouses, retail warehouse centres and supermarkets/discounters, which represented 27 percent. 

Jörg Ritter, Head of Retail Investments Germany at Jones Lang LaSalle: “The good consumer sentiment, the possibility of geographic diversification and the fact that many rental agreements are of a very long-term nature continue to support investments in retail properties. This relative security and the fact that the German economy is strong and stable by European standards lead to very good demand in uncertain times. It is no coincidence that foreign investors continue to account for a very high 44 percent of the total retail transaction volume. “

Ritter added: “Prime yields for shopping centres and retail warehouses recently declined by 10 basis points and 25 basis points, respectively, to 6.5 percent. Prime yields for first-class commercial buildings in downtown locations in the big 7 cities stand at a stable 4.16 percent on average. Larger retail warehouses are also stable at 5.9 percent. Overall, demand clearly focuses on the core segment.”

Shopping centres: Transaction volume up one third on prior year period

Accounting for over 40 percent of the retail transaction volume, shopping centres were the strongest retail property category by far as of the end of September. This represents an increase by about one third on the same period of the previous year. The recent sale of Perlacher Einkaufs Passagen (PEP) in Munich suggests that the positive trend will continue in the fourth quarter. In spite of their clearly dominant role, the year-on-year growth rates for shopping centres are lower than those of the other retail asset classes due to the very high levels they have reached. Nevertheless, shopping centres will defend their leading position also in the full year 2011. 

Retail warehouse products: Several portfolio sales mark clear upward trend in 2011

Appreciated by investors because of their defensive qualities, retail warehouse products showed a clear upward trend. According to Jones Lang LaSalle, the transaction volume for retail warehouse centres and retail warehouses exceeded EUR 2 billion as of the end of September (Q 1-3 2010: EUR 780 million). At approx. EUR 1.3 billion, retail warehouses showed particularly strong year-on-year growth (Q 1-3 2010: EUR 284 million), much of which was achieved in the first quarter, though. The transaction volume for retail warehouse centres was up by over 40 percent on the previous year and totalled almost EUR 710 million (Q 1-3 2010: EUR 498 million).

Commercial buildings: Transaction volume up by roughly one third on prior year despite scarce supply
 
Commercial buildings continued their upward trend with stable results that were spread evenly over the individual quarters. The volume for the first nine months totalled roughly EUR 1.45 billion, making this the third biggest retail investment class behind retail warehouse products. Compared to the prior year period (Q 1-3 2010: EUR 1.1 billion), this asset class increased by almost one third. The latest transactions such as the sale of a property in Stubengasse in Münster at roughly EUR 73 million suggest that commercial buildings will defend their strong position also with a view to the full year. Nevertheless, the available supply of first-class properties remains much lower than demand. 

Department stores: Prior-year volume doubles driven by individual transactions 

According to Jones Lang LaSalle, the investment volume for department stores totalled roughly EUR 1 billion as of the end of September, which means that it almost doubled compared to the prior year period (Q 1-3 2010: EUR 525 million). The second quarter (EUR 630 million) showed a particularly strong upward trend.

Supermarkets / discounters: Only asset class with declining investments

Following the weak first six months (transaction volume of EUR 47 million), portfolio sales led to increased activity in the third quarter. According to Jones Lang LaSalle, the transaction volume in the period from July to September amounted to just under EUR 250 million. Nevertheless, supermarkets and discounters were the only retail investment class in which the transaction volume was lower than in the prior year period.
Investor groups: Asset/fund managers, closed-end funds and project developers the most active investors

At the nine-month stage, the buyer side of the market was dominated by asset/fund managers, closed-end funds and project developers. Private equity and hedge funds as well as open-ended funds are also important investors. Between them, these five investor groups represented an accumulated investment volume of almost EUR 5.5 billion or approx. 65 percent of the total retail investment market as of the end of September.

The seller side is led by asset/fund managers and project developers. Private investors, open-ended funds and listed real estate companies complete the top 5. Between them, these market players sold properties in an amount of approx. EUR 5.6 billion, which represents two thirds of the total market volume.