Savills predicts strong H2 for German commercial real estate market

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According to Savills latest research, EUR9.4 billion was invested in German commercial real estate in the first quarter of 2021, 30 per cent below the five-year average, according to the latest research from Savills.

The international real estate adviser expects more than EUR50 billion will have transacted by the end of 2021. 
 
“The start of 2021 has been characterised by a cautious attitude from several owners,” says Marcus Lemli, Savills CEO Germany and Head of Investment Europe, adding: “Many of them are preparing to market properties imminently, leading us to expect significantly higher transaction activity in the second half of the year. Until then, off-market approaches will remain the method of choice for many investors willing to make acquisitions since investor demand remains very high.”
 
Fewer than 440 individual and portfolio transactions completed in the first quarter of 2021, which is roughly equal to the transaction figures for the second and third quarters of 2020. However, the low number of transactions is due to a supply shortage rather than any declining demand. Since the beginning of the pandemic, prime yields for office property in central locations in the top six cities have hardened by a further six basis points, according to Savills. On average, yields for prime office properties in B-cities have hardened by an additional 15 basis points compared with the top six markets.
 
“Core remains by far the most sought-after category in the German investment market and the intense competition among bidders has driven initial yields to new lows. Office properties with public sector occupiers are being viewed as a substitute for German government bonds and are being priced accordingly,” says Lemli.
 
Prime yields for logistics properties have hardened by 20 basis points over the last year while yields for shopping centres, hotels and retail parks have softened. At the end of the first quarter 2021, the average yield across the top six cities was 2.8 per cent for offices, 3 per cent for prime high-street properties, 4.3 per cent for retail parks and 3.5 per cent for logistics properties.
 
“Core offices, logistics, care homes and food retail properties will become more expensive while prices for most retail properties without strong food anchors will tend to fall further,” says Matti Schenk, Associate Research, Savills Germany.