German Commercial Property Investment market

Germany’s structure as a Federal state has ensured that its real estate market is characterised by a number of key cities rather than one dominant capital. Berlin, Düsseldorf, Frankfurt, Hamburg and Munich are seen as the Top 5 cities, however international investors are frequently attracted to locations other than these such as Cologne, Dresden, Leipzig or Stuttgart. The reasons for recent growth in German property prices have been a mixture of low borrowing costs, the prospects for economic and rental growth together with reasonably attractive yields. The previous East and West differentiation appears to be vanishing and the top purchase prices are being paid in Munich (the most expensive real estate market in Germany).

The prices for retail shopping centres have increased between 20-30% in recent years. Shopping centres are now transacting at yield levels of 5% and under. Due to a lack of supply and investors’ belief in the rising market, there is currently a particularly high level of demand for shopping centres in Germany’s popular locations.

The German office market tends to focus its attention on the Top 7 cities including Cologne and Stuttgart. Despite reducing yields, demand remains strong for long-term properties let to good covenant tenants and particularly absolute prime locations with good tenants. As a result, not only the prices, but also the interest for “B” locations is increasing.

Germany has re-gained a leading role in the European economy after many years of re-unification impacted slow-down. The positive tendency traced from 2005 is expected to continue, and the German real estate market is further expected to remain stable and continue to attract investors. It is likely that the market for commercial properties will reach a new
transaction record at the end of 2007. In the first six months commercial property transaction volume of €34 billion was recorded. This should hit €60 billion at the end of 2007.