Atisreal: sharp rise in retail investments in 2006 (DE)

In the booming German investment market, retail properties are heading the field. Of the total of almost €18.1 billion invested in commercial real estate in the first half of 2006, around €10.3 billion related to this property class – over 550% more than in the prior-year period (€1.6 billion). Much of the increase was due to the sale of the KarstadtQuelle portfolios (€4.5 billion), but even without that the figure is still some 270% up on the first half of last year. These figures are revealed by the Retail Market Report on the development of the German retail real estate locations in the past twelve months, just published by Atisreal Deutschland.

Portfolios in great demand – turnover higher than in the whole of 2005
Around €7.1 billion of turnover in the first six months of 2006 related to portfolio sales – as compared with €5.3 billion in the whole of 2005. Aside from the KarstadtQuelle deal (sale of 174 properties to a joint venture formed by KarstadtQuelle and Whitehall/Goldman Sachs), transactions included a Württembergische Versicherung package (33 properties sold for an estimated €233 million to an Australian joint venture formed by Babcock & Brown and GPT Group) and a Deutsche Real Estate discount store portfolio (13 properties to the British Topland Group for an estimated €148 million). On the purchasers' side, opportunity and equity funds clearly topped the table, with a market share of over 75%. The majority of investors were from the United States (over 66%), followed by the UK (12%) and Germany (6%).

Individual investments: shopping centres popularIn the January-June 2006 period, single deals added up to over €3.2 billion – again higher than the figure for 2005 as a whole (€3.1 billion). Demand focused predominantly on shopping centers (€1.7 billion); these included the Deka properties Nova Eventis and Allee Center Leipzig (sold for some €390 million to PCP Prime Commercial Properties of the UK). Commercial buildings incorporating office and residential space accounted for around €600 million; discount store sales also figured prominently (€400 million), as did sales of department stores (€300 million). The main investor groups were property companies, opportunity and equity funds and private investors, most of them from the UK (37%), Germany (25%) and the USA (11%).

Outlook: retail investment wave set to continue"The market is very buoyant. Since the beginning of 2005, we have registered average price increases of one to two annual rents", says Christoph Meyer, member of the Management Board of Atisreal and Head of Retail Services. D.I.Y. stores are already changing hands for around 16 times the annual rent. Even outside good inner-city areas, shopping centers – still a growth segment – command prices often substantially higher than 17 times the annual rent; in prime downtown locations they can fetch even more. Since early 2005, the defining force in the market have been Anglo-Saxon and Israeli investors. "Despite the increase in prices, the difference between rental yields and financing costs is still great enough for them to leverage a top return on investment", Meyer points out. In the meantime, German and Spanish investors are again active in greater numbers. At present, demand is very good from institutional investors as well as from private equity funds and private investors, who are pumping a lot of money into the market.

"We expect the surge in retail investment to continue for some time. However, purchase price development will quieten down, slowing the fall in yields", forecasts Christoph Meyer. "The first examples of rapid reselling for profit-taking purposes can already be observed. Foreign investors will increasingly focus on good to very good city center properties because they are looking for long-term sustainability. And they are increasingly discovering the "hidden champions": small to medium-sized towns with good purchasing power and centrality, with moderate rents and purchase

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