Socio-economic signs in Germany for 2018 could not be better, says Thomas Beyerle, research head for Stockholm-based financial group Catella. The group forecasts office property yields in the Big 7 cities sinking to 3.25%, along with still more foreign investment activity.
In a year-end report, Catella Research says 4.9m sqm of office space was rented in Germany's Big 7 last year, and the asset class took 41% of the record €57.4bn total property investment volume. Office prime rents rose by 4% to a median €29.37 sqm, while prime yields slipped further to all-time lows at 3.30%. Vacancy in the top seven metropolitan centres was 4.7% by year-end - with a broad range between Frankfurt at 8.9% and Stuttgart at 2.3%.
Looking ahead, Catella says, "No question: the socio-economic signs for 2018 in Germany could not be better." The firm expects a similarly high office space turnover, "even if the strong focus on CBDs up to now is shifting towards outskirts/arterial roads/development areas." It sees a significant decline of vacancy due to strong take-up as well as refurbishment activities, including repurposing for residential use.
For 2018, Catella anticipates a slight increase of prime rents (+1.5%) in the new-build/first-time occupancy segment. "The excellent economic development will be noticed in existing properties, where average rents will increase by about 2.5% in new contracts or extensions," the report says. But it also foresees a shrinking in transaction volume due to extended due diligence phases, shifts toward portfolios, and a significant internationalisation of the market, with even more foreign investor participation than last year.
"By the middle of 2018 yields will continue to sink to around 3.25% in the Top 7 markets because of the increasingly competitive position; premium markups for trophy buildings and portfolios will become the norm," Beyerle predicts. "This will be an exceptionally good year for real estate in Germany."