German retail property enjoys "exceptional" boom

Galeria Kaufhof, Munich Photo: Dustpuppy

Germany's retail property market is booming, as agents witness "exceptional" demand from investors.

Berlin has become a hub for foreign investors in residential real estate, thanks to strong returns and a growing population, but the country's commercial market has been just as active. According to Savills, €19.4bn was invested in German retail property in 2015, more than double the volume achieved in the previous year.

High-street properties were particularly sought-after with a total volume of more than €7bn invested, with large shops and department stores accounting for the biggest deals. Transaction volumes multiplied more than five times year-on-year.

Foreign investors dominate the market, accounting for 61 per cent of sales volume. Transactions were divided equally between individual deals and portfolios, notes Savills, with the three largest transactions of the year the acquisition of the Kaufhof portfolio by a joint venture between HBC and Simon Property Group, the acquisition of Corio by Klépierre and the purchase of a portfolio of high-street properties by Deka.

"Initial yields hardened significantly last year, most notably on retail parks. The prime yield in this segment hardened by 50 basis points during 2015 to 5.1 per cent," comments Savills. "Since demand continues to exceed supply and will do so for the foreseeable future, yield compression is expected to persist across all segments. "However, since this is likely to be less pronounced in 2016 compared with last year, rental growth potential will become more important."