Germany Market Environment

Economic Highlights

  • Largest economy in the Eurozone.
  • Fourth-largest economy in the world.
  • Growth in the German economy remains robust and broad-based.
  • GDP is expected to grow 1.6% in 2017.1
  • AAA credit ratings from Fitch, Moody's and Standard & Poor's.

Market Highlights

  • Largest property investment market in the Eurozone.
  • Mature industry with a transparent business environment.
  • Growing number of foreign investors attracted by stability, liquidity and growth potential.

Office Real Estate Sector2

  • Germany;s robust economy continues to drive demand for office space in the top five cities – Berlin, Munich, Frankfurt, Hamburg and Düsseldorf.
  • Strong demand has seen activity spill over from Central Business District (CBD) locations to city fringes, and even secondary and tertiary markets.
  • Office real estate remained the strongest asset class in 2016, with investments in the segment accounting for about half of total commercial transaction volumes.
  • The five key cities accounted for about three-quarters of commercial transaction volumes nationwide.
  • Capital values in the top five cities were boosted by rising prime rents and falling yields.

Leasing and Vacancy Rates

  • Leasing: Figures remained strong in the five key cities, reaching 3.2 million sqm in total, with Berlin and Munich leading in take-up rates of 888,300 sqm and 789,400 sqm respectively.
  • Vacancies: Rates in the top five cities continued to drop, such as from 4.9% and 12.1% in Munich and Frankfurt respectively at end-2015, to 4.1% and 11.1% at end-2016.

Average Prime Rents

  • Top five cities: Figures continued to climb in most cities in 2016, such as from €23.50/sqm/month in 2015 to €27.50/sqm/month in 2016 for Berlin, and €25.00/sqm/month in 2015 to €26.00/sqm/month in 2016 for Hamburg.
  • Secondary cities: Figures remained stable in Bonn (c. €18/sqm) and Darmstadt (c. €13/sqm) and have risen in Münster (c. €14/sqm) as at end-2016.3

Sector Investments

  • In all, €52.5 billion in commercial real estate changed hands in 2016.
  • The office sector accounted for about half of the €24.8 billion in market transaction volumes.
  • The five key cities remained the top choice for investors, accounting for about three-quarters of total office investment volumes.
  • Heavy demand in top locations has prompted investors to look at sustainable investment real estate in other areas.
  • Investment levels were supported by Germany's status as a relatively safer investment haven, particularly for foreign investors, who invested €10.8 billion in the sector.

Sector Outlook

  • Germany remains one of the world's most attractive markets for real estate investment.
  • Investment activity in office properties is expected to remain sturdy in 2017.
  • Continued high demand from international investors, especially for large-scale office investment opportunities, is expected for the top five cities.
  • Domestic investors are also expanding their portfolios because of political uncertainties worldwide.
  • Solid demand, given moderate completions and a limited pipeline, could continue to drive up prime office rents.
  • The sector is expected to see a sharp rise in foreign capital inflow in 2017, with yields declining moderately.

Sources

  1. Association of German Chambers of Industry and Commerce, 2017
  2. CBRE Germany Office Investment Q4 2016, 2017
  3. Jones Lang LaSalle, Property Reports from IREIT's Asset Valuation in Q4 2016