Investment Market Cologne: Cologne’s investment market is boosted by the stable office space market, and a high transaction volume can also be observed in the residential segment.
Cologne’s real estate investment market is thriving. At around 2.9 billion euros, the transaction volume realised in the first half of the year has been far above the 5-year average. This result was achieved thanks, in particular, to transactions concerning apartment buildings and condominiums for which considerable price increases were recorded in recent months.
6,300 euros per square metre: this is the current average purchasing price for a newly built condominium in Cologne, stated in the latest market report published by the real estate experts from Greif & Contzen. The demand surplus in the residential property segment remains high, despite the fact that prices have increased by more than five percent for new-builds and by more than ten percent for existing apartments. Condominiums offered for sale are rarely on the market for long. Greif & Contzen reports that the total transaction volume realised with condominiums was around 960 million euros in the first half of 2021. “This is the highest mid-year result in over five years,” says Thorsten Neugebauer, Head of Investment at Greif & Contzen Immobilienmakler GmbH. Final figures for the third quarter are yet to be published, but it is clear that the trend remains unbroken, and that investments in condominiums will have crossed the one billion-euros-line by the end of the summer. Added to this, there is the category of apartment buildings, which also accounts for a total transaction volume of over a billion euros.
The combined turnover of the residential segment was therefore significantly higher than was the case in the area of commercial properties, where around 1.2 billion euros were turned over before the end of the third quarter. Around 600 million euros, and therefore about half of the transaction volume realised with commercial real estate, was accounted for by office buildings. “The majority of investors involved in the commercial property market have become very active once again, since vaccination figures have been rising and travel and access restrictions were lifted,” explains Thorsten Neugebauer. “Most of the players of the property investment market had been observing the market cautiously up until the early summer, owing to some prevailing uncertainties. Real estate investors are clearly more optimistic again now.”
Investor interest was particularly low in the hotel and retail sectors that were most strongly affected by the coronavirus crisis, while a significant rise in demand could be observed in the logistics sector. However, this demand was met by very scarce availability of suitable premises. A number of sales of office buildings and ensembles were initiated in recent weeks, and some large-scale deals were concluded. The same is true for a few big retail buildings.
A positive lesson learned from the crisis is the realisation that Cologne’s real estate market is highly crisis-resistant. Thanks to its mix of user industries and size categories, Cologne’s office space market in particular can be considered very stable in value. This also becomes clear when comparing the city to Germany’s other top-7 cities. Alongside Cologne, these are Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart. “The value stability is promoted not only by the wide range of industries, but also by the fact that even during the pandemic, we had consistent and reliably high demand for space from the public sector, as well as a low vacancy rate and stable or even rising rents. The current conditions for investment in office space in Cologne are rather favourable on the whole. It is therefore likely that decreasing yields will be recorded in the fourth quarter, which means that purchasing prices will rise.” Standing at 3.00 percent, the prime yield for office properties has been stable over the course of the pandemic to date, while the prime yield for retail buildings increased to 3.3 percent.
Future prospects for Cologne's investment market
Real estate remains an interesting investment option, owing to the lack of alternative financial products. Cologne will retain its status as a “safe harbour” for real estate and will continue to offer attractive investment opportunities, according to Greif & Contzen. It cannot be observed that companies are “fleeing” from their office units, despite an increase in employees working from home. Office space is converted instead, in order to realise contemporary office concepts that require more space. The residential sector proves crisis-resistant and was not affected by the pandemic-related restrictions in Cologne in 2021. Investors are likely to focus on this segment even more strongly in the future. “Cologne’s investment market has proven crisis-resistant, and we expect the last few months of the year to be very dynamic,” Thorsten Neugebauer predicts.