Post by：Anke Haverkamp
Team Leader Shopping Center Investment Germany
In 2011 the commercial property investment market in Germany was clearly dominated by the retail sector, which accounted for around 45% of the total transaction volume of €23.5 billion. This positive trend is also evident with shopping centres. The transaction volume in 2011 grew by around 54% to €4.8 billion, meaning that shopping centre transactions accounted for around 45% of all retail property transactions. What are the main trends on the shopping centre investment market in 2012?
Stable prices but little demand in the middle risk segment
Investor demand for Core products will continue to dominate the market situation in 2012. It is more likely that there will be a greater scarcity of high-quality products in 2012 than in the previous year, however. For this reason, we expect to see either stable or slightly higher prices in this segment. At the same time, demand for Core+ properties remains very limited. This is due less to a lack of interest or the non-availability of capital, but more to a prevailing sense of great uncertainty on the market. The majority of investors behave in accordance with the general market sentiment, and demand disproportionately large risk premiums for shopping centres that do not fulfil all aspects of the desired profile. This means that sellers and buyers rarely agree on price. We observe strong demand for value-add properties and opportunistic investments. In contrast to 2006/2007, “opportunistic” no longer means uncritical buying behaviour that is focused only on price. On the contrary, a credible story has become decisive for a successful sale. The expected market development in terms of yield compression is no longer enough on its own.
Sellers in 2012
In 2012 we expect banks to continue the process already partially started in 2011 of cleaning up their balance sheets. Core properties are more likely to be sold off in individual transactions. On the other hand, it often makes more sense to sell value-add or opportunistic properties as part of a portfolio in order to increase the investment volume and optimise both time and resources. Furthermore project developers, but also asset managers in particular, will typically continue to exploit the good market environment for sales. It is not yet clear to what extent the German open funds will emerge as sellers. We will certainly see a sale or two on the market based on the fact that open-ended funds are increasingly focusing on active asset management. May 2012 will represent a decisive point in time, however: four of the currently closed funds will then have to decide whether to reopen or liquidate.
Trends among purchasers
The capital structure of large property transactions, which regularly take place in the shopping centre category as well, is becoming increasingly diverse with the development of more complex forms. Equity contributions and alternative financing channels are gaining in importance in this area.
Investors have recognised that shopping centres are a very complex product. Against this background, we are increasingly observing that international capital is joining forces with local retail specialists. This is happening in two ways: first, investors identify a suitable product and bring in an established market player early on during the examination phase. This player later takes on the asset management and frequently buys a minority stake in the investment; second, investors participate in project developments that have already reached a certain stage (e.g. pre-lettings, building permits etc.). For players such as ECE, this approach is not new. What is new is that the circle of the local partners has expanded, as have the number and origin of the investors that are searching specifically for these investments. This type of cooperation was first evident on a larger scale at the beginning of 2010, and has continued steadily since then. Local players with very good development know-how will particularly profit from this evolution. In this way they will be able to cover funding shortfalls with the required additional equity.
A further trend that is becoming increasingly apparent is the flow of capital from global and European sources that want to invest directly in property, rather than indirectly as in the past, and enter into long-term partnerships. As a rule, they aim to establish joint ventures with equal shares and seek partners that have an equally long-term view. This development opens up interesting possibilities for property owners. Property companies are able to sustain their asset management role and release capital at the same time. A positive side effect is that property investments are also increasingly becoming liquid in Germany, as long as the underlying joint venture agreements fulfil the demands of international and institutional investors. The fact that most sales of investments are not subject to land transfer tax also makes this investment structure very attractive commercially. This has particularly been the case since the land transfer tax was increased in several federal states.
All in all we expect a further interesting year on the German shopping centre investment market. Apparently, the market conditions remain good and shopping centre transactions will account for the majority of the complete retail investment volume once again.
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