BNP Paribas Real Estate publishes office investment market figures for Q3 2024
By the end of the third quarter of 2024, around €3.6 billion had been invested in office properties in Germany. This corresponds to a further decline of around 20% compared to the already very subdued result of the previous year. Meanwhile, the 10-year average was undercut by around three quarters. The bottom line is the lowest result since 2009. Unlike the other major asset classes retail, logistics and hotels, the office segment has not yet recovered, which means that it currently has a historically low market share of only around 20%. This is the result of the analysis by BNP Paribas Real Estate.
"The weak performance is largely due to the widespread absence of large-volume transactions, especially in the portfolio segment. The share of individual deals in the volume is currently more than 90%," says Franc Gockeln, Managing Director and Head of Office Investment at BNP Paribas Real Estate GmbH. The largest registered deal of the year was the acquisition of the Rossio project development by the City of Cologne for around €270 million from the public sector for its own benefit. In total, only three transactions above €100 million have been recorded so far.
The office segment in particular is currently suffering from the economic headwinds and the gloomy mood of the economy. For many investors, it is difficult to assess how demand for office space will develop in the future, although the rental markets are already sending the first positive signals again with rising take-up in the third quarter.
Meanwhile, the price adjustment processes have lost momentum, so that stabilization has set in at the peak. For example, the net prime yield for offices in A-cities is 4.36% on average. Munich remains the most expensive location with 4.20%, followed by Berlin and Hamburg with 4.25%.
A locations also 20% below previous year's figure
In line with the nationwide trend, investments were also made in the Class A locations, with a total volume of around €2.6 billion, around a fifth less than in the previous year. At €711 million, Frankfurt invested by far the most. Berlin is in second place with €435 million, followed by Hamburg (€369 million) and Cologne (€337 million). Meanwhile, office investment volume is well below the €300 million mark in Munich (€275 million), Düsseldorf (€249 million) and Stuttgart (€223 million).
As in the previous year, the share of A-locations in the nationwide volume is around 70% and thus below the long-term average (78%). Meanwhile, with a market share of one fifth, large cities >with 250,000 inhabitants still generate significant revenue shares, which is not least due to a series of core transactions with long-income leases.
Prospects
Although the office letting markets in the top markets have demonstrated their resilience in an almost impressive manner in a still challenging economic environment and have been able to score points with take-up above the previous year's level, investors continue to lack confidence in the office asset class for long stretches. The positive, albeit still hesitant, signals sent out by the office market are not yet reaching investors.
Among the aspects that speak for the relative strength of the German office markets, which should not be underestimated, are the low vacancy rates, especially by international standards, the very low supply of space, especially in the premium segment, the sharply rising prime rents, the upward trend in average rents, the positive forecasts for office employees as well as the large lettings that have recently been made again at close intervals nationwide. They also testify to a return of trust in the office on the user side.
"At the moment, the combination of factors outlined above is not yet sufficiently pronounced to noticeably stimulate the transaction dynamics across the board and to ensure a year-end rally. For the time being, the economic tailwind is still missing," adds Franc Gockeln.
However, the stable prime yields over the year indicate that the price discovery phase has come to an end and that the cyclical trough in both transaction volumes and yield levels is very likely to have been reached. The interest rate turnaround heralded by the ECB and the FED should ensure more attractive financing conditions, economic impetus and increasing momentum on the office investment markets as well.
