Cologne’s real estate investment market
The property experts of Greif & Contzen present their latest report of the first three quarters of 2020: The market is picking up speed again, following the involuntary break / changes to the demand structure due to the corona crisis
“It was an involuntary break, not a permanent standstill,” says Thorsten Neugebauer, Head of Investment at Greif & Contzen Immobilienmakler GmbH, regarding the past few months that were characterised by the outbreak of the coronavirus. “The corona pandemic and the lockdown period had a considerable braking effect on Cologne’s property investment market that had been very dynamic up to that point. However, market activities are steadily increasing once again,” Neugebauer continues. “Properties offered in Cologne’s market are still in high demand among institutional and private investors.” Commercial properties for around EUR 1.2 billion have been traded in Cologne’s investment market to date (EUR 1.5 billion in the year before).
Shifts between property types: Lower demand for retail and hotel properties
Owing to the corona crisis, investors tend to be a little more reluctant than in the year before, but no general hesitation or abandonment of real estate investments can be observed. However, shifts are taking place between the different types of real estate. “Retail buildings have been less popular in recent months,” explains Neugebauer. The retail industry that had already been struggling, was hit by the measures taken to contain the coronavirus. This made the situation even worse, and the transaction volume decreased significantly in this segment. Retail properties for around EUR 60 million were sold in 2020 so far. This corresponds to a decrease by over 45 percent compared to the same period last year. The effects of the corona pandemic are even more obvious, when it comes to hotel transactions: Not a single hotel property changed hands in Cologne’s investment market in the past couple of months. “The corona crisis hit a previously booming industry. Occupancy rates decline rapidly, owing to the lockdown and mobility restrictions,” says Thorsten Neugebauer. It is impossible to tell at this point, when things will go back to ‘normal’. Investors remain accordingly reluctant with regard to this real estate segment.
Office properties account for 56 percent of the total transaction volume
More than half of the transaction volume realised in Cologne’s commercial property market in the first nine months of 2020 (56 percent) was accounted for by office properties. Just over EUR 670 million were spent, for example, on the ‘Haus am Rudolfplatz’ development that AEW bought for a German insurance group. On Neumarkt and Siegburger Strasse, AEW meanwhile sold two large-scale office buildings to a fund by Tristan Capital, as part of a package sale. The French investors Advenis Real Estate acquired a package comprising three office buildings for the open-end fund ‘CPI Eurovalys’ for over EUR 60 million. Two of the buildings are located in Cologne-Braunsfeld and the third one in the commercial estate ‘Airport-Businesspark’. The property expert Thorsten Neugebauer finds that “with stable demand and purchasing prices, no negative consequences of the corona pandemic can be observed in the office property segment on the whole.” The net prime yield in this segment also remains unchanged at 3.00 percent.
Price increases for condominiums and logistics properties
An assessment of the overall situation shows that purchasing prices did not decrease, as had been suggested over the course of the corona pandemic. Quite the contrary: In the areas of condominiums and logistics properties, there are even segments in which properties have become more expensive. Industrial and logistics properties for around EUR 120 million were traded within Cologne’s city limits over the course of the year to date, corresponding to a significant increase since the year before. This is the case even more so beyond the city: in the Cologne|Bonn logistics region, industrial and logistics properties for around EUR 240 million were sold, and therefore for about EUR 140 million more than in the same period last year. Investment activities were particularly busy in Kerpen, Frechen and Euskirchen, where funds acquired properties to add to their portfolios. The prime yield on industrial and logistics properties decreased from 4.20 percent last year to now 3.80 percent, thanks to rising purchasing prices. Price increases could also be observed in the area of condominiums: The average price increased to around EUR 3,900 per square metre in 2020, while demand continues to be high and the volume of completions is declining. The average price for new builds rose to around EUR 5,700, which corresponds to an increase of about EUR 400 per square metre since the start of the year.
The outbreak of the corona pandemic initially caused hesitation in owners considering to offer their properties for sale. Meanwhile, demand and price levels have proven stable, however, and transactions have increased considerably, also in this segment. Apartment buildings for around EUR 460 million had changed hands by the end of the quarter. This is a good result, despite the fact that it corresponds to a decrease of around 30 percent compared to last year.
Outlook: Cologne’s property market proves robust
For the rest of the year, Cologne’s real estate market will continue to offer sound investment opportunities at high purchasing prices. The property experts of Greif & Contzen do not expect that there will be any general price reductions in the areas of residential, office, industrial and logistics properties in the current year. Cologne's property market proves robust and various important industries are going through the corona-related economic crisis relatively unharmed. In addition to this, economic forecasts for 2021 suggest that the economy will continue to recover and to support the property market. This is an important factor for the office and industrial/logistics segments, and these property types should continue to be considered secure investments, and to attract the interest of national as well as international investors.