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3.8 billion euros: record-breaking result for Cologne’s investment market

In their latest market report, the property experts from Greif & Contzen announce that a new record result was achieved in Cologne’s property market in 2021, when commercial real estate for a total of around 3.8 billion euros was traded.

The previous record of 3.1 billion euros was set in 2019. Last year, the transaction volume generated with commercial property in Cologne soared to 3.8 billion euros, thus setting a new record for the cathedral city’s investment market. The fund properties Rheinpark-Metropole and Koelnmesse from the respective Oppenheim-Esch funds changed hands in the biggest individual transaction. The US investment firm RFR Holding paid a total of around 1,100 million euros for the fund shares held by Deutsche Bank and other investors. There were further large-scale transactions with purchasing prices of over 100 million euros: the private equity fund TPG Real Estate sold a portfolio of office buildings on Josef-Lammerting-Allee and Eupener Strasse to DIC Asset for around 267 million euros, and Blackstone sold the office property ‘Cäcilienkloster 2-10’ to Union Investment for over 120 million euros.

Market development over the course of the year: 200 percent rise in the last quarter
‘The number and scale of sales shows that investors had great faith in Cologne’s property market in recent months, despite the pandemic,’ says Thorsten Neugebauer, Head of Investment at Greif & Contzen. ‘Confidence and willingness to invest increased steadily as the months went by. While the start of the transaction year of 2021 was still characterised by some restraint, the investment volume increased rapidly towards the end of the year.’ The property experts from Greif & Contzen consider the massive roll-out of the vaccination campaign to be a key factor in this development. Concerns of the market participants decreased in line with the progress of measures taken to fight the pandemic. ‘The first four months of the year were characterised mostly by off-market communication, where properties for sale were presented to a rather small circle of investors. Market-wide presentations were predominant once again in the second half of the year, and transaction activities were boosted as a result,’ Neugebauer explains. The steady decrease of social distancing rules and travel restrictions facilitated cross-border investments, as property portfolios could be viewed on site and negotiations could take place face-to-face. In addition, high demand was met by a wide range of available products, as many sales had been postponed in 2020 due to the pandemic. The strong interest in the commercial property market of the city on the Rhine peaked towards the end of the year: the turnover generated in the last three months of 2021 was 200 percent higher than the combined total generated in the first three quarters of the year.

Asset classes: office properties are still sought-after
With regard to asset classes, around 58 percent of the transaction volume in Cologne’s market was accounted for by office properties, which thus played a decisive role in achieving the record-breaking result. ‘There is very strong demand for core properties in the city centre in particular, and institutional investors were more willing to pay high prices than ever before in Cologne. Maximum purchase price factors well above 30 were realised in a number of transactions,’ property expert Neugebauer explains. Developments in the office space market in the cathedral city were among the most dynamic of the German top 7 cities, as is also lined out in the latest office space market report prepared by Greif & Contzen’s researchers. Cologne’s office space market is characterised by a very diverse user structure. In addition, the market is backed up by high demand for space from public facilities and a number of resilient private sector enterprises, such as educational institutions and law firms. ‘Cologne’s crisis-resistant office property market with its stable price levels has inspired confidence in institutional investors and given rise to a rapid development of prices,’ says Neugebauer, summarising the situation. Mixed-use properties accounted for a relatively large share of twelve percent, while development sites accounted for eight and retail properties for seven percent of the transaction volume. Much like the German hotel market, the retail segment has not quite shaken off the COVID-19 crisis to date, and transactions concerning hotels and retail buildings were accordingly scarce. Even better results could have been achieved in some other asset classes, if demand had not been far greater than availability, as had also been the case in recent years. ‘A few logistics facilities and several apartment buildings were sold, but there was still a strong demand surplus,’ Neugebauer reports.

The prime yield for top-quality city centre office properties decreased further over the course of the year, dropping from 3.0 to 2.7 percent, while the prime yield for logistics facilities gradually declined from 3.8 to 3.5 percent. The fact that institutional investors are willing to accept these yields, highlights their enormous pressure to invest in this low-interest environment quite impressively, and it also suggests that they have great faith in the respective submarkets. The prime yield for retail buildings meanwhile increased from 3.0 to 3.3 percent.

Outlook: further inflow of capital into the real estate markets
COVID-19 will remain a factor of uncertainty over the next few months. When hotel and retail investments will stabilise once again, will depend strongly on the further course of the pandemic. ‘The policy of the European Central Bank will have a strong impact on the entire market,’ Thorsten Neugebauer points out. ‘If the previous announcements of a low interest level are put into practice, it is to be expected that there will be many further property transactions, including those on a large scale.’ The property investment market will continue to experience an enormous influx of capital, if the central banks do not realise an increase of interest rates, thus giving rise to a lack of alternative secure long-term investment opportunities. It has also shown that office properties will continue to play a key role as workplaces on the long run, despite the trend of employees working from home, and that demand in a growing city such as Cologne will be accordingly high. The property experts from Greif & Contzen point out, however, that it will be difficult to match the transaction record set in 2021. The ensemble sold in Deutz in 2021 was an exception for Cologne’s investment market and will remain so for the time being.

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