Market in Minutes Investment Market Germany

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Market in Minutes: Investment Market Germany

Price question

  • In May, activity on the German property investment market stagnated at the level of previous months. A transaction volume of €2bn with around seventy transactions still does not indicate any increasing momentum. Although we have noticed an increasing number of sales considerations and preparations since the spring, we also assume that not all of these sales considerations will result in a sales process and not all sales processes will result in a sale.
  • As before, many intended sales are postponed because the expected highest bid would be too low for the landlord. Another case is also frequently observed: A sales process is started in the expectation (or hope) of an acceptable price, but it then transpires that no investor can be found for this price and the property is taken off the market again. MSCI observed more than one hundred such terminated transactions across Europe in Q1 2024, a new high.

  • The fact that this trial-and-error approach can be observed so frequently is probably also due to the fact that, at least in some market segments, there is still an unusually high degree of uncertainty about the achievable price for a particular property. The extent of this uncertainty can be illustrated by the development of the prime office yields reported by various property consultancy firms for the top 5 markets (see figure below). These have diverged significantly with the start of the interest rate turnaround and there were recently more than sixty basis points between the highest and lowest values. This corresponds to a spread of almost a fifth.

  • Now as before, hardly anyone has a better insight into the totality of transactions than we property consultants. This applies in particular to transactions that have not yet been completed or cancelled, which provide very valuable information about achievable prices in a market with few transactions. The fact that we arrive at different estimates despite this good insight shows how difficult it is in the current market environment to make reliable statements about achievable prices. In addition to the low liquidity, there are structural shifts in at least some segments.

  • As the individual types of use differ both in terms of their liquidity and their exposure to those structural shifts, they also differ in terms of price uncertainty. The reported prime yields currently diverge most significantly for offices and prime high street properties (see figure below). For the latter, the relative difference is as much as 40%. There is most clarity for logistics properties and supermarkets. The differences here are negligible. Retail parks, apartment buildings and shopping centres are positioned in between, with a difference of around 50 basis points or approx. 15%.

 

  • As long as these price uncertainties exist, it makes even more sense than usual for landlords to obtain several price indications. In addition, in the segments affected by particularly high price uncertainty, they will have to come to terms with the fact that they may only receive a reliable indication of the achievable price of a property if they actually offer it on the market. The result may be a disappointment, but it may also be a pleasant surprise. In view of this, the number of sales processes initiated remains an indicator for the further development of the investment market that should be interpreted with caution.


You can download all figures and the corresponding data here.