The German investment market continued on a positive trend in the second quarter after a strong start to the year. This was in contrast to last year, when the transaction volumes fell sharply between April and June following a strong first quarter.

In the first six months as a whole, the transaction volume increased by 19% y-o-y to EUR 11.3 million. We expect this increased activity to continue and forecast a transaction volumes of between EUR 22–24 billion by the end of the year.

Germany is increasingly being viewed as a safe haven in a world burdened by growing uncertainties and risks, and the property asset class is particularly benefiting from this. This situation is hardly surprising in view of the ongoing attractive interest rates and the high spread of yields, even for so-called core products. In addition, the situation has improved on the lettings market, which ensures increased reliability of cash flow. However, German investors continue to focus on security, and trading in high-risk property is moving forward at a slow pace.

The percentage share of investments in the Core+/Value Add segment increased from 23% in 2010 to 30% in the first half of 2011. In accordance with the improved situation on the lettings markets, investors are beginning to seek properties whose value could potentially be increased through lettings or renovation measures.

An analysis of active buyers in the first six months provides a diversified picture. Closed investment funds invested around EUR 2.2 billion (20 % share) and are currently the most active investors. This group also accounted for three of the five largest transactions in the first half of the year, including the acquisition by DWS of the Deutsche Bank towers for EUR 584 million, the investment by ECE European Prime Shopping Center Funds in two centers in Berlin and Potsdam for a combined EUR 320 million, and the acquisition of the “Hamburger Meile” shopping center by Real I.S. for around EUR 254 million.

Developers invested around EUR 1.1 billion (a significant increase compared to EUR 430 million in the first half of 2010). Along with traditional development sites, developers were also active buyers of cash-flow-generating property stocks (for around EUR 800 million). Such stocks primarily included shopping centers in need of renovation. Traditional financing from banks often proves to be an obstacle to development measures, but new providers of finance are emerging such as Mezzanine funds. In addition, joint ventures and forward funding are making a comeback.

Retail investments continue to dominate the German market. The retail sector has particularly profited from the positive economic development in Germany and dominates transactions in the commercial property market. Although the sale of the Deutsche Bank towers for around EUR 584 million represented the largest transaction overall in the second quarter, retail transactions accounted for seven of the top ten transactions in the quarter. The retail asset class accounted for a volume of EUR 6.2 billion in the first six months of 2011. Office property accounted for EUR 2.9 billion or 25%, which is unchanged from the first half of 2010.