Savills: Munich real estate market review and outlook (DE)

Munich is one of Europe's most prospering cities with a healthy economic structure, accommodating global players like BMW, Siemens and Allianz as well as numerous innovative small and medium sized companies. This favorable framework is also reflected in the regional real estate market: Office space take-up was higher than in any other German city last year, Kaufingerstrasse is one of the most expensive high streets in Germany and the take-up of logistics space achieved a record high in 2011. These extraordinarily good results positively affected the real estate investment market and led to a doubling of transaction volume year-on-year.

By Matthias Pink, Head of Research, Savills Germany


Investment market
Regarding single assets the 2011 transaction volume amounted to approx. €1.6 billion which was the highest volume since 2007. Including portfolios, e.g. the acquisition of the famous Oberpollinger and a Karstadt sports store by Signa and Centrum, the volume even amounted to €2 billion. Only Frankfurt and Berlin were able to attract more money in 2011 but no German market achieved a higher increase year-on-year than Munich. Retail properties were the most favored asset class as they accounted for half of the total transaction volume. This result is mainly due to a couple of large-scale acquisitions. Apart from the mentioned Karstadt portfolio, a US pension fund purchased the PEP shopping center for more than €400 million. Another three-digit million deal in the retail sector was the acquisition of a 49% share of the Pasing Arcaden shopping center by the center developer and manager mfi. Investments in office properties accounted for 40% in 2011, with the sale of the Altstadt-Palais for €85 million by UBS as one of the biggest transactions.

Looking at the relevant parameters, the investors' focus on retail properties is no surprise. The purchasing power is more than 30% above the German average and higher than in any other of the large German cities. Furthermore, the centrality index of approximately 120 indicates that the retailers in Munich are able to attract consumers from outside the city. This framework guarantees a long-term secure and stable cash-flow for the owners of retail properties. Another factor that facilitates this stability is the difficulty in obtaining permission for new retail schemes from the local planning authority. Hence the existing shopping centers, retail parks and other existing retail properties are rather well protected against the risk of tighter competition.

These favorable conditions attract risk-averse investors in particular. Thus insurance companies and pension funds were the most active group of buyers, accounting for 30% of total transaction volume in 2011. Open-ended funds, which exhibit a similar risk-return profile, ranked second and acquired Munich properties worth about €260 million. Development companies were also amongst the top buyers, which show confidence in the future positive development of the Munich market. The city is not only a favored destination for domestic real estate investors but also for foreign players. Last year's transaction volume was equally distributed between German buyers and investors from abroad. US buyers were the most active group amongst foreign investors,

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