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Weak start to the year for office investment market Germany

The German office real estate investment market achieved a transaction volume of €3.2 billion in the first quarter of 2021. Compared with the same period a year ago, this reflects a decline of 62 percent that is essentially due to supply shortage, along with restrictions due to the coronavirus pandemic. This is the conclusion drawn in a current analysis prepared by CBRE.


“This considerable decline is to be seen first and foremost in the context of the very strong year-end quarter in 2020 in view of the pandemic when many deals were closed that did not then come onto the market in the first quarter,” says Fabian Klein, Head of Investment at CBRE Germany. Moreover, the first quarter of 2020 was the strongest opening quarter on Germany’s office investment market, which is another reason for the steep decline. “Investor demand nevertheless remains at a significant level, especially for premium core properties. More properties have been coming on the market again since the middle of the first quarter, which will give transaction activity a boost,” Klein comments. High investor demand is also reflected by the prime yields of office properties that, as an average across the Top 7 locations, have dropped five basis points to 2.84 percent in a year-on-year comparison.

“Given the strong fundamentals and signs of an economic upswing in the second half of the year, Germany is the market par excellence for international investors in 2021,” says Dr. Jan Linsin, Head of Research at CBRE Germany. The ifo business climate index climbed 3.9 points to 96.6 points in March compared with the previous month. This is the highest figure since June 2019. The employment barometer took a leap in March as well. “Despite the lockdown, the labour market is in recovery mode and the economy has got a spring in its step. Coupled with a return from working from home, this growth will ensure that demand for office space picks up momentum again,” Linsin states.

At 71 percent, most of the transaction volume was attributable to the Top 7 locations that hold special appeal for international players. Compared with the year-earlier period, this reflects a decline of 6.7 percentage points, however. “Investors with international operations continue to want German investment centres, which is corroborated by the results of our current Investor Intentions Survey on preferred locations for real estate investments in 2021. The survey shows that German locations rank among the top ten, with Berlin and Frankfurt hot on the heels of London,” Linsin says. By contrast, the market share of portfolio transactions shrank by 22.9 percentage points to 12 percent.

Outlook for the full year
“Despite more of a weak opening quarter, Germany’s office investment market is already showing clear signs of increased momentum. Assuming a successful vaccination campaign in the months ahead, we anticipate a strong investment volume of up to €25 billion for the full year,” Klein says.

“In view of the ongoing focus on core and core plus investments, we expect to see yield compression for properties with secure, long-term cash flows continue over the course of the year, especially since abundant investment capital wanting to be invested in German office properties is waiting in the wings. Office properties continue to rank as the most important asset class. The prospect of a growing number of people returning to their customary workplace is boosting the confidence of the respondent investors in continuing to place their bets on this asset class. The experience gathered from the pandemic affirms that, despite all the flexibility of the modern working world, the physical office is a place where people want to meet and communicate to implement projects successfully, learn from one another, exchange know-how to drive innovations and share everyday life,” Klein says.

“We believe that the ECB and other central banks will continue to steer a very expansive monetary policy for the foreseeable future, thus supporting aggregate demand and the demand for office properties, which will keep prime yields under pressure,” Linsin explains.

Office investment market in a y-o-y comparison
Q1 2020 Q1 2021 Change Y-O-Y
Transaction volume (€ billion) 21.12 17.99 -62%
of which Top 7 77% 71% -6.7%-pts
Share of portfolios 35% 12% -22.9%-pts
Share of international investors 48% 31% -16.5%-pts
Prime yield (NIY, average Top 7) 2.89% 2.84% -0.05%-pts