Nineteen percent investment decline in corporate real estate
The crisis has also left its mark on the corporate real estate asset class. The investment market is clearly declining, but more properties are being rented. The reason: demand for space remains high and the turbulence on the investment market is mainly due to the interest rate development and the resulting shock. This is shown by the 18th market report of the INITIATIVE UNTERNEHMENSIMMOBILIEN.
In the first half of 2022, the investment market for corporate real estate had still proven to be crisis-resistant and, in contrast to most asset classes, had recorded rising transaction volumes. Now the transaction volume has fallen by around 19% and amounts to around 1.32 billion euros. This means that the turnover level is around 26% below the long-term average.
The decline in the investment volume also highlights the uncertainty of the players in the actually very crisis-resistant asset class of corporate real estate. There will only be more transactions when there is greater certainty about inflation and interest rate developments.
There was strong demand from investors for production properties in particular in the second half of 2022. Within the asset class of corporate real estate, these proved to be the most resilient type of property during the crisis. The investment volumes correspond to the values from previous years. One of the largest transactions by volume was the purchase of a former printing plant in the Dresden city area. The second largest volume is accounted for by business parks, for which a transaction volume of around 311 million euros was registered. This represents a very significant decline of around 40% in the development of commercial parks compared to the first half of 2022.
Increase in yields for all property types
With the turnaround in interest rates in the middle of last year, the valuation of investments in corporate real estate has also changed. Financing conditions have become significantly more difficult over the course of the year. The rise in yields has gained further momentum, at least in part.
The minimum yields (gross initial yield) for prime properties in the last half-year were 4.2% for business parks, 3.7% for transformation properties, 3.8% for warehouse properties and 5.0% for production properties.
While investments were broadly spread across regions in the first half of 2022, investments were increasingly concentrated on individual regions in the second half of the year. For example, the top 3 regions of Berlin, Region East and Region South generated around 67% of the total investment volume in the second half of the year.
Rentals on the rise
Less is being traded, but more is being rented. The reason: demand for space remains high and the turbulence on the investment market is mainly due to the interest rate development and the resulting shock. Thus, in the second half of 2022, an increasing take-up of space in corporate real estate was recorded. At around 1.34 million sqm, the take-up volume rose by around 7.5% compared to the first half of the year and was also around 5% above the 5-year average.
This clearly shows that stable demand for space prevails even in an environment of rising rents. The main demand was for rental space in production properties; the users come from the manufacturing sector, many are companies from the technology sector.
The lack of space in the corporate property segment meant that rents for all types of space continued to rise. Despite uncertainties in the economic environment, the demand for well-positioned commercial space remains immensely high.
Note: You can download the 18th market report of the INITIATIVE UNTERNEHMENSIMMOBILIEN here: https://initiative.bulwiengesa.de/unternehmensimmobilien/en/reports
Contact person: Felix Werner, Senior Consultant, firstname.lastname@example.org and Daniel Sopka, Consultant in the Logistics Real Estate department at bulwiengesa, email@example.com