The gap between office and industrial has halved over the last decade and will tighten in the short term.

Despite the backdrop of the pandemic, a faltering economy and a significant fall off in global investment, the German market has showed some real resilience during 2020. After a record 2019 with 70 billion euros transacted, we expect to see investment volumes total 50 billion euros for the year, in excess of the ten-year average.

The logistics real estate market is now finally out of the niche

Further emphasis was placed on logistics with yields at historic lows and transaction levels at a high. After the financial crisis in 2009 with a market share of only 6%, in Q3 2020 it is at 13% and might be higher by year’s end as investors are highly seeking for logistics assets.

In the retail segment, food and e-commerce are among the big beneficiaries and pushed the investment volume due to portfolio purchases. High street and shopping centres are under pressure due to the effects of the pandemic on consumer behaviour. Subsequently we are seeing a decrease in deal counts.

Activity in the hotel sector is also under pressure. Recovery is expected in 2023 at the earliest. Investment volumes have also reduced significantly in this sector. Office, the dominating sector since 2012, saw a decrease in investment volumes, but on the other hand, a high demand for core product with further price effect.

Whilst banks have become increasingly cautious, the ultra-low interest environment is contributing to a downward pressure on yields. Pricing is holding up particularly in major office and industrial markets, with prime yields as low as 2.6% and 3.5%. The gap between office and industrial has halved over the last decade and will tighten in the short term. While overseas investors remain active in larger cities, we are seeing domestic investors particularly switched on to opportunities in smaller cities that may have arisen as a result of the pandemic.

The logistics real estate market is now finally out of the niche

Further emphasis was placed on logistics with yields at historic lows and transaction levels at a high. After the financial crisis in 2009 with a market share of only 6%, in Q3 2020 it is at 13% and might be higher by year’s end as investors are highly seeking for logistics assets.

In the retail segment, food and e-commerce are among the big beneficiaries and pushed the investment volume due to portfolio purchases. High street and shopping centres are under pressure due to the effects of the pandemic on consumer behaviour. Subsequently we are seeing a decrease in deal counts.

Activity in the hotel sector is also under pressure. Recovery is expected in 2023 at the earliest. Investment volumes have also reduced significantly in this sector.

Office, the dominating sector since 2012, saw a decrease in investment volumes, but on the other hand, a high demand for core product with further price effect.

Whilst banks have become increasingly cautious, the ultra-low interest environment is contributing to a downward pressure on yields. Pricing is holding up particularly in major office and industrial markets, with prime yields as low as 2.6% and 3.5%. The gap between office and industrial has halved over the last decade and will tighten in the short term. While overseas investors remain active in larger cities, we are seeing domestic investors particularly switched on to opportunities in smaller cities that may have arisen as a result of the pandemic.

Outlook

As ‘lockdown light’ takes effect, the outlook remains relatively positive. Market fundamentals and Germany’s handling of the crisis thus far has instilled some confidence and underpinned investor appetite. While there is likely to be upward pressure on yields on almost all assets outside of logistics and warehousing, this is from very low levels.

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