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Flying high: Cologne’s investment market exceeds the two billion euro mark

Im Vordergrund ein Brunnen mit Bronzefiguren, im Hintergrund das Gerling Quartier

The economy is booming, employment figures are on the rise, interest rates are low, Cologne continues to grow: this is the right kind of environment for property values to thrive and prosper. And so they did in the past year of 2017. More than ever before: Greif & Contzen’s researchers report a transaction volume of around 2.3 billion euros achieved in the cathedral city’s commercial property market in 2017.

“A new record for Cologne!“ says Thorsten Neugebauer, Head of Investment at Greif & Contzen. With 1.9 billion euros, 2015 had ranked in the top spot so far, while the transaction volume in 2016 was around 1.8 billion euros. Now a total turnover of 2.3 billion euros was achieved in Cologne’s commercial property market. These dry figures represent a very dynamic market: “Many investors gave up on their buy-and-hold strategies, and this caused the availability of tradable properties to increase. This situation was met by domestic and international buyers who were willing to pay high prices,” explains Neugebauer. “The favourable general conditions of Cologne’s market have once more attracted foreign investors, in particular from the US, Britain and Luxembourg. Investors from abroad account for many of the major transactions in the two and three-figure million euro range.”

Some of the biggest transactions were: Deutz AG selling their development site in Cologne-Mülheim to the Gerchgroup for more than 135 million euros; Momeni buying the Deutsche Bank office complex in the Banking Quarter from its former owners J.P. Morgan Asset Management and Proximus for a specialised fund for more than 100 million euros; an Esch fund selling the shopping centre DuMont Carré in Cologne’s city centre to a fund by Tristan Capital from Britain; Proximus and Quantum buying Gerling Quartier including Friesenquartier from Immofinanz AG; as well as a technology park portfolio comprising 17 office and commercial buildings in Braunsfeld, which a family office sold to Apollo Global Management from the US and the Silverton Group.

More retail, less office space
Remarkable for Cologne: retail properties accounted for around one fifth of the transaction volume. This is more than usual. “It is particularly apparent in this segment that investors are parting with their properties in order to benefit from the current high-price phase. Much fewer large-scale retail properties and commercial buildings in good locations were available in the market in previous years,” describes Thorsten Neugebauer. The predominance of the traditionally strongest asset class has decreased: office properties accounted for just over 50 percent of the total transaction volume of the past year, down from around 75 percent in 2016. There has been a number of cases in which properties were held for less than five years and were now sold on at significantly higher prices. The downside for buyers: the high purchasing prices have led to a slight decrease of prime yields. However, they continue to be on a good level compared to other asset classes, with 3.7 percent in the office space segment (previous year: 3.8 percent), 3.2 percent for retail buildings (previous year: 3.6 percent) and 4.7 percent in the area of logistics (previous year: 5.0 percent).

Good prospects and a stable pricing Level
Where do we go from here? – “There is a broad consensus that the demand is going to stay strong and that the current pricing level will remain stable in the medium term,” says Neugebauer. The real estate experts from Greif & Contzen do not expect prices to be forced up. On the one hand there are ongoing property development projects to meet the enormous demand and on the other hand there are still plenty of potential development sites available in Cologne. The growing trend among investors to realise trading profits by taking real estate portfolios to the market may further boost the availability of properties for sale in 2018. One thing is relatively certain: “Cologne’s properties will continue to be sought after around the world,” says Thorsten Neugebauer.
The bottom line: Cologne’s real estate investment market is doing better than ever before. And prospects continue to be favourable.