BERLIN-First quarter prime office values in the seven top German cities showed a continuation of the positive performance trend from the last seven quarters, though growth slowed to 1.3% compared to the fourth quarter 2010, said Jones Lang LaSalle in a release of its latest Victor Prime Office indicator. The growth rate in Q4 alone had been 2.6%.
After a strong performance in core assets in last year’s second half, 5.5% higher, accompanied by strong demand for ‘core’ real estate, the market seems to have taken a breather in the first quarter, JLL said . “Because of the shrinking supply of such assets at present and the anticipated rises in rents, institutional investors are re-defining their short and medium-term investment strategies,” said Andrew Groom, head of Valuation & Transaction Advisory for JLL Deutschland. “We expect further rises in the index after a period of consolidation, mainly driven by rental growth. However the limited supply of property credit will play a significant role, despite the noticeable improvements of rents over the last 12 months. The impact of the rise in interest rates is also not to be underestimated and could have a braking effect on performance going forward.”
Hamburg was the clear winner in the first quarter, with prime office values rising 2.4% against Q4, followed by Berlin at 1.9%.
JLL calculated total return for German prime office in major conurbations over the 12 months to end-March, aggregating capital value increases and rental income, at 13.2%. This was led by Frankfurt with 14.9%, while Munich with 10.9% showed the lowest return. “In comparison to the European top locations such as the city of London, London West End and Paris CBD, total returns in German are more than competitive,” Groom said, using Investment Property Databank data in the other cities for comparison. “Risk and security conscious national and international institutions are likely to continue to invest in German property in prime locations that exhibit top quality assessments.”
Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.
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