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Copenhagen 23rd of November
Property EU
European Real Estate Markets
2018/2019Dr. Thomas Beyerle
November 28th 2018
2 Source: Catella Research 2018
Economic Outlook
Cyclic pattern of the European commercial real estate markets
Insecurity: Possibility of „cyclical trend change“
Which strategical implications can be derived?
3
QUICK STATS Q1-3 2018COMPARED TO Q1-3
2017
Commercial transaction
volume€ 42.23 billion +8%
Prime office yield
(Average TOP 5)3.02% -22 bp
Prime retail yield
(Average TOP 5)2.90% -30 bp
Prime office yield
(Average B-locations)4.90% -40 bp
Prime yield logistics 4.10% -65 bp
Commercial transaction volume per type of asset
Commercial transaction volume in Germany
Source: Catella Research 2018
Germany: Investment market driven by large transactions
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Office Retail Industrial Mixed Use Hotel Others
€b
illi
on
Q1-Q3 2015 Q1-Q3 2016 Q1-Q3 2017 Q1-Q3 2018
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
€b
illio
n
Q1-3 Q4 long term average
Fo
reca
st
Long term average
4
Germany: Top 5 markets with record volumes
• The German commercial transaction volume for the first three quarters of
2018 of €42.23 billion is the second highest after 2007.
• Record volumes of €22.68 billion in Q1-3 2018, representing a strong
increase of approx. 32%, for the Top 5 cities: due to large single asset
deals in these markets, especially in Frankfurt.
• Over €14.5 billion, by far the biggest share of 64%, was invested in office
properties in the Top 5 markets. Retail transactions increased in the Top
5, only due to the consolidation of Kaufhof and Karstadt (approx. €2.0
billion). Logistics transactions gain momentum in the Top 5, but the lion`s
share is still being transacted in the rest of the country, with large
portfolio deals.
• There is still high demand for core office properties and existing product
is scarce, therefore increasing interest for development projects in core
locations.
• There are still some large transactions in the pipeline. Thus, for the
German commercial investment market an overall investment volume of
approx. €59 billion seems feasible.
Transaction volume by type of use, Top 5 markets
Inner circle
Q1-3`18:
€22.68 billion
Outer circle
Q1-3`17:
€17.12 billion
Commercial transaction volume, Top 5 markets & Rhine-Ruhr
Source: Catella Research 2018, RCA
64%10%
4%
8%
14%
66%
8%
5%
10%
10%
Office Retail Industrial Hotel Others
Q1-3 2018 BER DUS FRA HAM MUNRHINE-
RUHR*
Office stock,
(sqm million)19.00 7.70 11.90 13.70 14.10 25.33
Office prime
rent, (€ sqm)33.50 27.00 41.00 27.00 37.00 27.00
Commercial
transaction
volume (€
billion)
4.59 2.75 6.79 3.92 4.64 4.79
Cross border
(in %)64.0 54.0 40.0 22.3 40.0 47.4
Prime office
yield
(in %)2.90 3.25 3.15 3.05 2.90 3.25
* Dusseldorf, Cologne, Duisburg, Essen, Bochum, Dortmund
6.79
4.64 4.59
3.92
2.75
4.79
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Frankfurt Munich Berlin Hamburg Dusseldorf Rhine-Ruhr
€b
illio
n
Q1-Q3 2015 Q1-Q3 2016 Q1-Q3 2017 Q1-Q3 2018
5
Germany: Investors increasingly seeking for assets outside the Top 5
Source: Catella Research 2018, RCA
5.09.2
11.113.7
16.719.8
26.8 25.5 26.422.7
5.5
10.1
12.0
11.7
14.0
20.2
28.427.0
30.9
19.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bill
ion
€
TOP 5 Rest of Germany
Increasing transactions outside the Top5 markets since 2014
*
* Q1-3
Commercial transactions year-to-date 2018 (office, retail, logistics)
6
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
B- cities A- cities 10 YR Government bond
Germany: Yield gap is shrinking further, forecasts predict stable yields
• As a result of the sustained high demand, particularly for core office properties, yields declined further, but at a slower pace. The latest forecasts
for yields only see modest further compression in 2018.
• However, the yield gap of approximately 280 basis points between prime property yields and bond yields remains very supportive and still leads
to further inflow into property. Investors with higher yield requirements and “manage to core strategy” might therefore focus on “core plus” and
“value add” investments outside the A-cities / Top 7 markets.
• The ECB decided in their last meeting to keep the main refinancing rate unchanged at 0%. By the end of the year, the QE-program (monetary
policy support bond purchases) will be over. The key interest rates remain at zero levels until further notice. A first modification of refinancing
rate is therefore expected in 2019.
Prime market yields vs. Government bond yield
Source: Catella Research 2018, PMA
280 basis points
155 basis points
7
Germany: Risk / Return profile of German office markets 2018
Source: Catella Research 2018
„next best“-
Opportunities
Potential
Investmentcorridor
8
Germany: Most prominent commercial transactions in Top 5 Markets in 2018
Source: Catella Research 2018
Market Property Adress Buyer Price in € million Gross yield Price €/m²
Hamburg Springer Quartier Axel-Springer Platz 1Ärzteversorgung Niedersachsen, Sachsen-
Anhalt, Mecklenburg-Vorpommern400 3.3 % 6,558
Hamburg K1 Kaiserkai 1 Triuva 86.9 3.3% (net) 8,276
Frankfurt EL55 Eschersheimer Landstr. 55 Cresco Capital 44 3.7% 5,045
Frankfurt Behördenzentrum Gutleutstr. 112-138 Aroundtown Property 500 3.8% 5,501
Frankfurt Galileo Tower Gallusanlage 7 CapitaLand 356 4.0% 8,786
Munich Correo Quartier Bayerstr. 49-53 Credit Suisse 275 2.7% 6,071
Munich Machtlfinger Höfe Machtlfinger Str. 5-15 Conren Land 85 3.7% 4,603
Munich Leo 240 Leopoldstr. 240-244 AEW Europe 60 4.0% 5,128
Berlin Zalando Campus Valeska-Gert-Str. Hines 235 3.7% 5,153
Berlin Stresemann Campus Stresemannstr. 121-121a Aroundtown Property 70.5 4.1% 4,819
Berlin Rathaus Mitte Karl-Marx-Allee 31 Caleus Capital, Tristan Capital 87.4 4.2% 4,185
Dusseldorf Infinity Office Schwannstr. 10 DIC Asset 153 3.5% 7,463
Dusseldorf Kö- Blick Königsallee 61 Fabrica Immobiliare SGR, Cicerone Fund 50 3.5% 7,407
9 Source: Catella Research 2018, Destatis, * Q2/2018
Germany: Low yields and demographic factors with strengthening pressure on real estate prices
Increasing residential prices
- Influx towards metropolitan
areas
Strongly growing demand
- social housing / housing subsidy
/ goal conflicts
Extending supply of residential real estate
properties
- regulation / transaction costs /
electoral freedom for private
capital formation-6
-4
-2
0
2
4
6
8
10
12
-20 0 20 40 60 80p
op
ula
tion
gro
wth
(%
)
Development of newly build real estate prices (%)
MUNB
STU
FRA
CGN
HH
DUS
MUN
FRA
DUS
HH
STU
CGN
B
2012-2018*1995-2011
10
0
20
40
60
80
100
120
140
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
€th
ou
sa
nd
, p
rice
pe
r u
nit
€b
illio
n
Q1 Q2 Q3 Q4 Price per unit
3.1
0.81.8 2.0
4.4 4.8
8.6
5.2
9.9
5.05.8 5.5
8.4
4.3
1.6 1.8 1.8
6.97.3
7.8
9.9
5.6
7.0
8.2
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
€b
illi
on
A-cities Rest of Germany
Germany: Residential volume heading for new record
• The German residential market registered a strong volume of
approx. €13.6 billion in the first three quarters of 2018, an
increase of 37% compared to Q1-3 2017.
• The acquisition of the German Buwog portfolio for €2.9 billion
by Vonovia is the overall largest portfolio deal so far.
• The proportion of German A- cities slowed down, mainly due
to the large corporate deals (Vonovia, Adler) and scarcity of
large residential portfolios in these cities.
• Acquisitions of project developments are rising further, due to
scarcity of existing core assets and continued high demand for
housing especially in urban areas.
• Demand for micro apartments and student housing is gaining
momentum. The supply for investors is therefore getting
wider, due to social changes and rising population in
metropolitan areas.
• With rising demand in specific housing products (micro
apartments), which are particularly interesting for international
investors, a transaction volume of minimum €17 billion in 2018
seems feasible.
Residential transaction volume and price per unit*
Residential transaction volume in German A-cities vs rest of Germany*
*Based on properties and portfolios € 5 million and greater. Single- family, semi-
detached houses and condominium purchases are excluded.
**
** Q1-3
Source: Catella Research 2018
Fo
reca
st
11
European transaction volume in € billion*
European Investment Market – strong fourth quarter
• The total real estate investment volume in Europe reached €175.3 billion in the first three quarters of 2018, 15% below the Q1-3 2017 result. The
decline in activity is that 2017 was a record year and, with sellers demanding high prices, the deal flow cannot keep growing ad infinitum.
• Nevertheless, market sentiment remains positive and early indications are that the fourth quarter will be healthy and has already started very
strong with approx. €30 billion completed deals and another approx. €26 billion are pending.
• Furtthermore, there has not yet been a change in pricing trends. Yields in some markets are starting to drift sideways but there is no sign of a
major turn. The part of the market most vulnerable to repricing is the super-prime end and properties yielding 3% may be affected when rates start
to rise.
Source: Catella Research 2018, RCA
* All assets: office, retail, industrial, hotel, residential
€ -
€ 50
€ 100
€ 150
€ 200
€ 250
€ 300
€ 350
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1-3 2018 2018 f
€b
illio
n
approx.
€100 billion
in Q4
12
Nordics (SWE, FIN, NOR, DEN, ISL):
16.7 billion €
Germany: 55.8 billion €
Benelux (BEL, NED, LUX):
19.0 billion €
United Kingdom: 45.7 billion €
Eastern Europe: 2.6 billion €
Central Europe (POL, CZE, SVK, HUN):
7.1 billion €
Austria & Switzerland: 4.7 billion €
3
7
8
9
European investment volume Q1-3`18 – Country Review
1
2
France: 17.8 billion €4
6
Source: Catella Research 2018, RCA
* All assets: office, retail, industrial, hotel, residential
Turnaround Europe (IRL, POR, ESP, GRE, MAL, CYPR, ITA):
16.9 billion €5
13
Lyon 6.60%
Madrid 9.50%
Barcelona 8.20%
Stockholm 7.70%
Copenhagen 7.20%
Helsinki 12.80%
Berlin 1.90%
Frankfurt 7.70%
Hamburg 3.90%
Munich 3.50%
Dusseldorf 6.70%
Paris 5.00%
Source: Catella Research 2018
Berlin
Hamburg
Copenhagen
Stockholm
Helsinki
Dusseldorf
Frankfurt
Munich
Paris
Madrid Barcelona
Lyon
Vacancy rate and Outlook 2019
European Real Estate Markets – Office overview
14
Lyon 21.25 EUR/sqm
Madrid 32.50 EUR/sqm
Barcelona 24.00 EUR/sqm
Stockholm 56.00 EUR/sqm
Copenhagen 19.00 EUR/sqm
Helsinki 33.00 EUR/sqm
Berlin 33.00 EUR/sqm
Frankfurt 40.50 EUR/sqm
Hamburg 27.50 EUR/sqm
Munich 30.00 EUR/sqm
Dusseldorf 27.50 EUR/sqm
Paris 67.50 EUR/sqm
Source: Catella Research 2018
Berlin
Hamburg
Copenhagen
Stockholm
Helsinki
Dusseldorf
Frankfurt
Munich
Paris
Madrid Barcelona
Lyon
Prime rent and Outlook 2019
European Real Estate Markets – Office overview
15
Catella’s Outlook for 2018 / 2019
Source: Catella Research 2018
• Large amount of available capital for real estate investments – especially by
institutional investors
• Expected yield compression – in second-tier locations and markets
• Office and retail properties – will remain the most sought after assets for both
international and national investors
• Rising take-up volumes – in European office markets with increasing prime rents and
declining vacancy rates
• Housing sector – will come increasingly on the radar of investors, especially project
developments
• In the short run, the real estate market seems relatively healthy, with prices and rents
still on the rise
• However, a slowdown can be expected given the rise of construction projects, the
tapering of the ECB’s QE program, and the eventual rise of interest rates
• Market bets expect a first rate move in Q3
• The low inflation and cautious lending suggests that it will be a controlled/gradual
slowdown, rather than a sudden bubble burst
16
Asset Allocation*
Catella
Source: Catella Research 2018
Signals from the three components:
Cycle positive
valuation neutral
sentiment positive, nevertheless plateauing
Cycle
Overweight
Positive
Selective
Residential
Healthcare
Student Housing
Office (observe flexible
workspace evolution)
Hotel
Industrial /Logistics
Developments
Retail (out of town)
3rd tier locations
….
*strategic allocation - case-by-case examination
Catella´s Strategy – Real Estate Asset Allocation 2018 / 2019
17 Source: Catella Research 2018
…sure, but we should trust the fundamentals
more than the sentiment
Are the Real Estate markets facing a change?
Thank you for your attention.. Let´s discuss!
London 1972
