NAI apollo real estate: Residential property portfolio market in Germany makes stronger start to 2017 compared with 2016 — sales reach €3.7 billion in Q1

• Transaction volume of €3.7 billion exceeds first quarter of 2016, but fails to match record start to 2015
• More large transactions than in Q1 2016
• Listed property companies and REITs replace open-ended funds and special funds as the strongest buyer group
• German players remain the most active investors; investments by international players remain virtually unchanged
• Average purchase price rises again due to Deutsche Wohnen acquisition with a high average price per residential unit, numerous sales in project developments and general purchase price increases

Frankfurt am Main, 12.04.2017 – According to a study by owner-managed real estate consultancy firm NAI apollo real estate – a partner of the NAI apollo group – the market for residential portfolio transactions in Germany made a better start to 2017 compared with 2016, with sales reaching around €3.7 billion (Q1 2016: €2.2 billion). "Thus the transaction volume was 70 % above the previous year's level, but was still well below the €10.8 billion achieved in the first quarter of 2015," explained Dr Konrad Kanzler, Head of Research at NAI apollo real estate.

The number of traded residential units reached about 27,700 and exceeded the number of units sold in the first three months of 2016 (around 23,000) by 20.4 %. The number of transactions increased by 42.5 % to 104 transactions (Q1 2016: 73). There were also more deals that exceeded €100 million. While only three deals in this range were realised in the first three months of 2016, the number doubled to six in the recent quarter. In addition, one transaction above €500 million took place, following a complete absence of such deals in Q1 2016.

At the same time, the €100 million to €500 million and €50 million to €100 million categories also registered strong increases of approximately €0.4 billion apiece, or over 95 % and almost 88 % respectively. "The volume of transactions worth above €50 million in project developments increased more than threefold from Q1 2016, rising to €0.7 billion," said Stefan Mergen, Managing Partner of NAI apollo valuation & research GmbH. However, the transaction volume generated by small portfolio sales of between €10 million and €25 million also doubled to around €0.6 billion compared to Q1 2016.

Open-ended funds and special funds had been the most active buyers over the course of a year, but listed property companies and REITs regained the number one position in the first quarter of 2017 with a purchase volume of €1.3 billion and a 34.7 % share. "In the first few months of 2016, this group accounted for €0.3 billion and a 14.9 % share of the overall volume. Thus it increased its transaction volume fourfold," said Dr Konrad Kanzler.

"Asset/fund managers" were in second place with total purchases amounting to €0.7 billion and an 18.5 % share (Q1 2016: €0.2 billion / 9.6 %). "Open-ended funds/special funds" were thus relegated to third place in Q1 2017 with a transaction volume of €0.6 billion (17.5 %) (Q1 2016: €0.4 billion / 20.0 %). "Nevertheless, the latter group's total volume increased by 48.8 % because of its continuing excellent performance," said Stefan Mergen.

"With regard to the different groups of sellers, project developers continued to perform strongly in the first quarter of 2017. Their accumulated sales amounted to around €1.8 billion, which represents a threefold increase from the €0.6 billion that was achieved in the previous year and also accounts for almost half of the transaction volume," added Dr Konrad Kanzler. "Property companies" were next by some distance with €0.9 billion (24.7 %).

Domestic buyers continued to dominate the German market for residential portfolios, accounting for an 81.9 % share of the transaction volume in Q1 2017. This corresponds to around €3.0 billion (Q1 2016: €1.5 billion / 67.9 %). "Although the share attributable to international investors more or less halved to 18.1 % compared to Q1 2016, their investment volume of €0.67 billion in Q1 2017 was only slightly below the previous year's level of €0.69 billion. Thus their commitment to the German market remained at almost the same level," said Stefan Mergen.

In terms of location, Berlin topped the ranking of major cities and accounted for 11.8 % of all transactions (based on the number deals). However, the German capital's dominance was slightly less pronounced compared to the first few months of 2016 (Q1 2016: 18.7 %). At regional level, Saxony – with sales mostly in Dresden and Leipzig – was ranked in second place after long-standing leader North Rhine Westphalia (27.3 % share) and was able to increase its share of the number of transactions to 13.6 % (Q1 2016: 9.3 %). "This is also not least a sign that the increased interest registered by investors in secondary and tertiary locations at the beginning of 2017 is continuing," said Stefan Mergen.

The €655 million purchase by Deutsche Wohnen of a residential and commercial portfolio, comprising 4,170 units in Berlin, was the biggest of six major transactions this year. The second-largest purchase was carried out by Foncière des Régions (FDR), and concerned the acquisition of a residential portfolio with 1,800 units in Berlin as well as Leipzig for €202 million.

Based on all transactions in the quarter, the average price of a residential unit increased to €132,900 (Q1 2016: €94,200). "The high average purchase price paid by Deutsche Wohnen in its portfolio deal partly contributed towards this increase. In addition, prices are continuing to rise for units in existing buildings as well as project developments," said Dr Konrad Kanzler. The total sales volume in project developments increased by 54.2 % year-on-year to €1.1 billion (Q1 2016: €0.7 billion / 32.0 %). This segment therefore accounted for a 29.1 % share. "The steady rise in prices and the increasing level of sales within project developments reflect both the ongoing shortage of supply in existing properties and the unwavering desire of investors to invest," added Stefan Mergen.

Based on the positive first quarter, NAI apollo expects the transaction volume in the year as a whole to be in line with previous years, excluding the record result of 2015. Thus total sales should lie between €13 billion and €15 billion.