The German investment volume for office and commercial buildings outside the seven largest metropolitan areas reached 1.2 billion EUR in the first half of the year. This represents an increase of 32 per cent compared to the same period last year, despite the second quarter being marked by a general market slowdown. In comparison, the transaction volume in the Top 7 markets rose by 28 per cent.
The development in the office sector surpassed the performance of the entire commercial real estate investment market, whose transaction volume largely stagnated year-on-year. A differentiated analysis of office mixed-use transactions shows that the number of deals in the Top 7 markets increased by 21 per cent, while outside these centres, it decreased by 39 per cent. This decline in the number of transactions in B and C cities is due to the execution of significantly larger individual transactions.
The average deal size in the regional market has more than doubled from 13 million EUR to 27 million EUR, which is almost on par with the Top 7 markets, averaging 32 million EUR. Manuel Backfisch, Head of Capital Markets B&C Cities Germany at Colliers, explains that large core transactions in the triple-digit millions are still rare, but some of these transactions have recently been observed outside the major metropolitan areas as well.
Distinct Individual Transactions and Changing Investor Preferences
Market-relevant examples in the first half of the year include the acquisition of an office building with a data centre and printing facility in Kaarst by the State of North Rhine-Westphalia for 320 million EUR for own use. Another significant transaction was the purchase of an ensemble of three life science properties in Heidelberg by the Austrian fund manager GalCap for 100 million EUR. These large-volume individual transactions indicate that investors' location preferences are changing with the renewed interest in office properties.
Backfisch emphasises that the liquidity of a macro-location is no longer the sole decision criterion. Instead, factors promising low investment risk and stable cash flows are gaining importance. This particularly applies to properties with long-term tenants, such as public sector entities or companies from future-oriented industries, who base their location decisions on specific property and site requirements. For large-volume properties, this significantly reduces the risk of vacancy.
- —Regional private investors represent the most active investor group, measured by the number of acquisitions, with an average transaction size of 12 million EUR.
- —Asset and fund managers execute transactions averaging 50 million EUR and account for approximately one-third of the capital invested.
- —The predominantly smaller property structure in B and C cities aligns with the current investor focus, as smaller lot sizes are more easily financeable with equity.
- —For debt financing in these segments, lower risk premiums often apply, enabling faster loan approvals.
Outlook: Earlier Market Recovery in Regions
Manuel Backfisch expresses cautious optimism regarding the remainder of the year. A stabilisation of the geopolitical situation could lead to market activity outside the Top 7 markets picking up faster than in the major investment centres. Higher risk premiums are making smaller markets more attractive again in an environment of increased bond yields, which could favour capital reallocation. Furthermore, price corrections in many B and C cities are already further advanced, bringing buyers' and sellers' expectations closer together. This is expected to accelerate sales processes and support market activity in the coming quarters.
