JLL’s quarterly VICTOR Prime Office report was treading water in Q1 2021 with only +0.6% performance growth. The indicator for Germany’s top real estate hub locations that were surveyed for the report came in at 222.6 at the end of March 2021.
“The slowdown triggered by the Covid-19 pandemic is also leaving its mark on the first few months of 2021. Neither the leasing markets nor from the investment markets sent out tangible signals in terms of price performance in Q1,” says Ralf Kemper, Head of Valuation & Transaction Advisory JLL Germany. Investors continue to watch the leasing markets closely. “Despite a number of supportive measures, 2020 saw recessive trends in some sectors of the economy. The next few months will show to what extent businesses have been able to weather the pandemic, especially moving into May when the exceptions for filing insolvency lapse. In contrast to this trend, the DAX has been breaking record after record.”
Ralf Kemper continues, “The unresolved economic situation continues to bring uncertainty to many businesses and that uncertainty is also making itself felt on the real estate markets. However, prime office properties should remain resilient to the negative rent and yield trends for the time being. This assumption is based on the fact that vacancy rates remain low and that the tenant mix in these prime locations tends to be primarily comprised of solvent multinational firms. Much will depend on how fast we are able to recover from the third wave of Covid-19 infections and how deep the impact will be. In any case, the latest economic data posted by the German government gives cause to be cautiously optimistic.
Ralf Kemper adds, “We saw an increase in companies looking for space in Germany’s real estate hubs in the first three months of the year. Companies appear to be shifting away from a wait-and-see stance and getting ready to take action. They are working out concepts for future office use, which then translate into looking for actual space. An analysis of investor behavior over the past few months also indicates that the chances of investor activity intensifying in the second half of the year are good. There is currently a significant amount of capital looking for a sensible home and pressure to act in order to be able to achieve 2021 investment targets continues to grow with each month that goes by without a transaction.
The favorable signals on the leasing markets should also help support the decision-making process in this context. With other parameters (e.g. the interest rate environment) remaining favorable for real estate investors, we can expect to see increased activity buy-side. Product availability is likely to increase as well, particularly in the prime segment. The number of requests for bids put out for sale advisory mandates in the past three months is well above average. To put it in a nutshell, we expect a hot summer and a strong Q4. In line with this trend, we are also likely to see renewed yield compression and further price increases around prime products.”