Corporate Real Estate: Funds Embark Shopping Spree
Corporate Real Estate: Funds Embark Shopping Spree
As far as Unternehmensimmobilien go, the demand for investment-grade properties and for new rental units remains sky-high. But suitable assets are in short supply. As a result, investment and letting volumes have taken a nose dive. That is the upshot of the latest market report published by Initiative Unternehmensimmobilien. Just as interesting is that acquisitions by asset managers and fund managers were more than five times as high as the amount spent in 2018.
During the first six months of 2019, both investment and take-up volumes declined noticeably over prior half-year – the transaction revenue on the investment market by 40 % to 1.1 billion euros, the take-up total by 30 % down to 246,000 sqm. This goes to show: The only ways to relieve the shortage in the investment market are either to step up construction activities or to put owner-occupied properties on the market. The main reason for the setback on the occupier market is the short supply in rental units. Many occupiers are currently prioritising safety – which, in the case of new rentals, means that lease agreements are signed for longer terms and that subsequent leases are negotiated as quickly as possible.
Asset Managers and Fund Managers Buy Five Times as Much as They Did in H2 2018
The past half-year saw massive shifts among the market players. Asset managers and fund managers, for instance, acquired five times as much as they did during the second half-year of 2018, spending over 210 million euros compared to just 37 million euros in transactions during H2 2018. Still, their investment total undercut the five-year average, which was nearly 368 million euros, by one third. Yet they do not seem keen to sell either at the moment: At 250 million euros, they were much less active than they had been during the second half-year of 2018 (372.2 million euros).
Similarly, public property companies/REITs were busier buying than selling Unternehmensimmobilien, judging by the five-year average. Deutsche Industrie REIT-AG, the latest member to join the Initiative Unternehmensimmobilien out of its commitment to improve the networking and to enhance the transparency of data, has its own explanation for the phenomenon. As Sonja Petersen, CIO of Deutsche REIT-AG, said: “We continue to see Unternehmensimmobilien as a niche market, albeit one that very quickly gained in significance over the past years, not least because of the lack of high-yield alternatives. This is why we already started to invest in attractive Unternehmensimmobilien assets back in 2017. We are earning handsome returns from current business. The high rental yield and the great stability across cycles represent the key characteristics for us.”
Domestic Players Rapidly Expanding their Market Share
During the past years, the investment market for Unternehmensimmobilien was clearly more international in character. This is largely to blame on big-ticket portfolio deals. In some cases, entire companies complete with their real estate holdings changed hands. Many known names, such as Valad or Geneba vanished from the market this way while new names entered it, e.g. Cromwell or Frasers. Domestic market players increased their market share by more than 20 % while dominating the buyer side with a share of more than 83 %. The seller side presented a virtually identical picture. Never before did a report of the Initiative Unternehmensimmobilien credit German companies with such high market shares.
Business Parks Top the Wish List
Business parks represent the most desirable format among the four types of Unternehmensimmobilien assets (converted properties, business parks, warehouse/and smaller, urban logistics properties, plus light manufacturing properties) as defined by the members of the Initiative Unternehmensimmobilien. All other asset categories suffered set-backs in terms of transaction volume relative to the five-year average. This made business parks the fastest-trading asset category during the first half-year of 2019. At nearly 440 million euros in transaction revenue, they accounted for almost 41 % of the investment total. As the latest market report shows, the yield compression for Unternehmensimmobilien is fast losing momentum, generally speaking.
Steady Decrease in Production-Related Occupiers
One forte of Unternehmensimmobilien assets is their broadly diversified tenant mix. The demand side has undergone a radical shift over the past five years: Classic tenants from the fields of manufacturing, light industry and the automotive sector are gradually being replaced by companies from the sectors of logistics and services. Similarly, the demand group “Miscellaneous,” which is composed of diverse minor industrial sectors, plays an increasingly important role. The share of classic tenants, which used to make up about 50 % of the tenant base, has in many cases dwindled to much lower shares of 20 % to 25 %.
Occupiers from the logistics and transport segment increasingly opt for Unternehmensimmobilien premises as well. This is attributable not just to changes in the consumption patterns of the general public but also to the gradual merging of production and logistics. Since the supply of logistics real estate and green-field plots keeps shrinking, many occupiers have lately opted for accommodation in other Unternehmensimmobilien categories.
Note: You will find Market Report No. 11, along with all previous market reports, on the homepage of Initiative Unternehmensimmobilien.
Contact person: Tobias Kassner, Head of Division Industrial and Logistics Real Estate at bulwiengesa, kassner [at] bulwiengesa.de