Prime yields on office buildings in the big five German office markets of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich remained largely unchanged over the past three months, according to Savills.
The international real estate advisor reports that in Düsseldorf, Hamburg and Munich the net initial yields achieved for properties in CBD locations remained stable, whereas in Berlin and Frankfurt they even contracted by 10 basis points (bps). This suggests that the outward movement in yields, which has continued for almost two years, has now stopped. Furthermore, this is underpinned by the fact that even in non-CBD locations within these five cities prime yields have remained stable compared to the previous quarter with the exception of Munich where they continued to rise (+ 40 bps).
The lowest prime yields are currently recorded on properties located in the CBD of Munich (4.8%), followed by Hamburg (5.0%), Düsseldorf (5.2%), Frankfurt and Berlin (5.4% each). The lowest risk premiums are noted in cities in which experts are attributing the most favourable economic prospects.
Compared to their autumn 2007 low, yields on properties in central locations have risen by 70 bps on average. The highest boost was noted in the traditionally volatile Frankfurt market (+ 120 bps) whilst the lowest was recorded in Munich and Hamburg (+ 50 bps each). On office buildings located outside the central business districts the outward movement was even significantly higher with Berlin showing the highest volatility with a + 200 bps rise.
Lars-Oliver Breuer, managing director and head of investment at Savills Germany, comments: "As demand for office buildings has picked up slightly during the past few months and many market players have overcome their state of shock, yields are not due to rise further." This statement is supported by the fact that some European markets such as London or Oslo have already recorded falling yields in Q3. Savills forecasts a further increase in yields will not occur due to the emerging stabilization of the economic and financial environment but remains open as to whether yields will fall.