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Office investment market 2008/09

Turnover on the Düsseldorf office investment market has declined dramatically, as in all the other major office markets in Germany. But leaving aside the exceptional years 2005, 2006 and 2007, the overall result for 2008 (780 million euros) is still higher than the average recorded between 2000 and 2006 (768 million euros).

The trend towards smaller deals continued in 2008. Practically no property sales above 50 million euros were recorded. This was also reflected in the average transaction volume per sale, which fell from around 20 million to roughly 15 million euros. The main reasons for this arise from the finance and banking crisis which has been making itself felt strongly on the real estate market since autumn 2008. Banks are being considerably more restrictive when it comes to granting credit than in the boom years of 2006 and 2007. Last year, this resulted in efforts being concentrated on real estate investors with a high equity ratio. These investors generally focus on so-called core real estate (buildings in prime locations and with reliable long-term tenants). Apart from this, declining revenues on the 2008 office investment have not had a detrimental effect on the publicly listed standard ground values for office and retail locations. On the contrary, these values have again seen significant increases between 13.0 % and 38.5 %.

Preferred investment location: the city centre periphery

In 2008, only the districts surrounding the centre (35.1 %) were able to post a higher level of total revenue than in the previous year (26.2 %). Various factors have contributed to this development, including the significant office building transactions in Düsseldorf’s Golzheim district (Cecilienallee and Am Bonneshof) and along Grafenberger Allee (Global Gate III). All of the other areas recorded moderate losses, but the degree of volume redistribution among locations remained minimal. Düsseldorf’s non-central locations have continuously increased their share of the total volume over recent years and were able to maintain this high level despite minimal losses. This was mainly down to further purchases in the north of the city – in Airport City, Quartier(n) and Theodorstraße.

Rising percentage of German buyers

Despite a slight downward trend, foreign investors maintained a high level of interest in Düsseldorf’s real estate in 2008. The proportion of foreign buyers was 58.3 % (2007: 64.5 %). As predicted, the level of interest among German buyers rose to fill the gap. In a breakdown by investor groups, the severe decline of equity and real estate funds continued. In reporting year 2008, this group had a share of merely 8.7 % of total sales (2007: 29.6 %). But the financial crisis was also the main reason for the strongest growth seen in any buyer group this year: private investors with a strong capital reserve closed 7.4 % of all deals, as opposed to 0.7 % in 2007. This trend led to a more even distribution of buyers, although closed-end funds did manage to retain their position at the top of the list with 19.5. The field of property sellers is also more diversified in 2008 than in the previous year. The largest groups were property developers (19.9%) and real estate companies (14.6 %). Growth in the percentage of foreign sellers, which stood at over 20 % last year, has slowed down. In 2008, the proportion of sellers from abroad stood at 23.2 %, compared with 20.5 % in 2007.

Higher revenues

The trend of falling sales prices and rising revenues that was sparked by the capital market crisis in mid-2007 in the US continued in Düsseldorf in 2008. Growth in revenues for office and business properties in city locations ranged between 5.2 % and 8.0 % (2007: 4.8 %–6.9 %), in the neighbouring districts they ranged from 7.0 % to 8.0 % (5.9 %–8.0 %) and from 7.0 % to 8.7 % in non-central areas (6.7 %–8.7 %).

Grafenberger Höfe, Grafenberger Allee

Trends and forecasts

The figures from the first half of 2009 clearly show that the downturn in the office investment market has yet to reach its nadir. In the first six months of the year, only 157 million euros in turnover were registered for the office and business property submarket in Düsseldorf. The total transaction volume for 2009 is difficult to predict, however, because of the ongoing financial crisis.

The most likely scenario would be an increase in the level of ‘safe’ investments – in residential property or in the previously mentioned ‘core’ segments of the office property market. As regards buyer groups, the proportion of investors with strong private equity will continue to rise in the course of 2009 and beyond.

How or when the current investment situation will turn around is open to speculation. This will largely depend on the further development of the financial crisis and the general state of the economy. But there is no doubt about one thing: drawing on ideal locational advantages for business (great infrastructure, high purchasing power, stable job market, growing population, moderate and stable rental and purchase prices etc.) and leveraging considerable investments of its own in infrastructure projects, Düsseldorf is doing what needs to be done to make this city attractive for investors and keept it so in the long run.