Investment market
The fundamentally positive economic development over the last decade has resulted in sustained demand for real estate in all submarkets and has consolidated and expanded Hannover's position as the most important location after the seven major A cities in Germany. Hannover offers attractive investment opportunities and attracts national and international investors who want to invest in valuable locations.
Nevertheless, transaction activity is currently dominated by a nationwide slump in demand. Based on the transactions completed by the end of the second quarter, a significant market recovery in 2024 cannot be expected at present. However, initial transactions in the third quarter point to a better result in the second half of the year.
Market sentiment and trends
The long upswing on the German investment market has also brought falling yields and rising investment volumes to the Hannover Region since 2010. The investment market in Germany slumped significantly at the latest with the abrupt turnaround in interest rates at the beginning of 2022, while further crises and uncertainties in connection with the EU taxonomy are causing uncertainty.
In the Hannover Region, investment figures fell significantly at the start of the coronavirus pandemic in 2020 and initially stabilized at around € 500 million per year in 2021/2022.
Investment year 2023 with another decline
The hoped-for recovery in 2023 failed to materialize across Germany. The investment volume in Germany fell again by over 50% in 2023 compared to the previous year, but only by just under 25% in the Hannover Region.
Although the decline in investment volume in Hannover was more moderate than the national average because the market had already settled at a lower level regionally, it cannot be decoupled from the general trend. Excluding off-market deals, the investment volume for commercial real estate in the Hannover Region amounted to a good EUR 410 million in the past year.
This figure is around EUR 100 million below the previous year's figure and around EUR 250 million below the average figure for the past five years.
Increasing demands for sustainability and energy efficiency
However, the investment pressure from many investors remains high. In the office and logistics submarkets, the prospects of rising rents for prime properties have recently improved further. Furthermore, none of the current projects can ignore the issue of sustainability and all of them are therefore a perfect fit for investment demand and the requirements of the companies using them.
Nevertheless, the discussions surrounding the amendment of the German Building Energy Act and the European Union's strict energy efficiency requirements for buildings are unsettling, especially for prospective buyers who want to invest in existing properties.
Yield compression clearly understandable
Prime yields rose significantly again in all submarkets in 2023. Office and logistics properties recorded the strongest growth in Hanover. Yields here rose by 50 and 60 basis points respectively. The increase for retail parks was also 50 basis points, while commercial properties only rose by around 30 basis points from 4.2 % to 4.5 %. Hotel properties increased from 5.2 % to 5.6 %.
Logistics and production properties continue to dominate the market
Around 75% of investments were made in the logistics and production submarket in 2023. Two major transactions dominated the result in the logistics segment. AEW Europe acquired the Panattoni Logistics Campus in Hannover Brink Hafen for around €160 million and Deka Immobilien acquired the VGP Park Laatzen for around €85 million. The great regional importance of logistics and production properties from previous years thus continues.
Outlook: Transaction market does not pick up
A significant market recovery in 2024 is currently not expected due to the transactions carried out up to the middle of the year. At the end of the second quarter of 2024, only five transactions with an estimated total volume of around €120 million were recorded in the Hannover Region. As in previous years, the submarket of logistics and production properties dominated.
At the beginning of the third quarter, it was announced that a property company of HUK Coburg had sold an office and commercial building ensemble with 16,000 sqm of rental space in Hanover's city center to Getec Immobilien for almost EUR 70 million. Despite this indication of an upturn in the market in the second half of the year, it can be assumed that the overall transaction volume will again be low in a long-term comparison.
The price expectations of buyers and sellers continue to converge only slowly, especially for office properties. In all commercial real estate submarkets, prime yields are also expected to rise significantly in 2024. According to current forecasts, the increase will be around 30 to 40 basis points across all submarkets.
Yields for properties with quality or location deficits are likely to rise even more sharply. This illustrates the existing general uncertainty among investors and the focus on high-quality properties.
The first market stimuli are coming from the numerous insolvencies of project developers on the one hand and the upcoming refinancing and cash outflows from real estate funds on the other. The changed financing conditions pose major challenges for portfolio holders following the revaluation of their properties. Sales to secure liquidity could be the result.
The supply of office properties in particular is likely to increase over the next few years, as upcoming refinancing could fail more frequently due to the change in prices and interest rates.
Sustainability and energy efficiency determine the market
Market participants in Hanover expect opportunistic and value-add-oriented investors to become increasingly active in order to adapt outdated existing properties to current and future social, ecological and economic challenges through revitalization and realignment(manage to ESG).
The issues of sustainability and energy efficiency are becoming increasingly important in the commercial investment and project development market. In the office and logistics submarkets, there are still prospects of rent increases for top properties, although these are almost exclusively limited to new buildings in very good locations.
Rents for properties with quality or location deficits are coming under increasing pressure. At the same time, this is leading to a further spread in yield levels. The amendment to the German Building Energy Act and the ongoing discussions about the implementation of the EU taxonomy are contributing to uncertainty.