There are several factors that have led to this development. Overall, the retail sector is very dynamic and whilst E-commerce in Germany has increased significantly, bricks and mortar still remains the largest retail sector. The positive consumer sentiment in Germany continues, which benefits shopping districts and attractive shopping centres in particular. Investors therefore have had high interest in prime retail space and rent levels have been increasing steadily.
The international interest in retail was especially visible during the financial crisis when office rent periods became shorter whilst retail lease contracts remained rather long term oriented. However, demand for prime retail product in the key cities in Germany over the last few years has now made the retail market extremely competitive with very few core opportunities left. Therefore, investors are driven to look at less core locations and asset classes to pickup attractive yields.
For many investors, logistics assets and mixed-use products seem to be a new attractive alternative in 2014. For example a year-on-year increase of approximately 38% was recorded in Germany in the market for logistics and industrial real estate in 2012 with a transaction volume of almost €1.6 billion. Nevertheless, the retail market is still peaking investors’ interest as they are looking at value-add and opportunistic assets due to a positive capital lending market.
The increased confidence in the German economy has a positive effect on the real estate investment sector in Germany. More and more investors can use higher LTVs for their acquisition. Bank lending has increased since the credit crunch a few years ago. This has led to more and more opportunistic acquisitions with large multi-asset real estate deals being executed by highly leveraged non-domestic private equity investors.
Currently many investors and real estate companies are expanding their real estate teams, especially within the investment and asset management departments. Employers are looking for experienced and well connected Germany speaking candidates to fill these roles. The signs from our recent industry gathering at EXPO for 2014 look very positive and we see Germany continuing to be a very attractive market for many investors across the globe.
Article first appeared in REurope Magazine, November issue written by Daniel Bauer.
If you are interested in retail property opportunities in Germany, please contact your nearest office.