Investment Market Cologne Including Submarket Reports 2016

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1 Investment Market Cologne Including Submarket Reports Town hall reflected in the façade of LANXESS arena Greif & Contzen

2 Dear Sir or Madam Investment activities in Cologne s property market reached new record levels in The total volume of transactions was even higher than in the boom year of The market was boosted significantly by a number of transactions regarding large, mixed-use property ensembles. Most notable among those transactions was the sale of the town hall and LANXESS arena including the ice hockey arena of Cologne s hockey team Kölner Haie for a price of around EUR 440 million. The multi-purpose event hall is among the biggest ones in Europe. It was bought by Asian investors. Furthermore, a number of large residential and commercial estates were sold in various districts of Cologne at prices in the three-digit million euro range. Investors also showed an increased interest in hotel properties. When it comes to the hospitality sector, Cologne is to be considered a growth market. Various investors have bought further properties and thus extended their presence in Cologne in More than half of the total investment volume was accounted for by international investors. Meanwhile there have been a number of upwards adjustments to the demand forecasts for the residential real estate market. There is a wide gap between these figures and the amount of construction projects completed. Ambitious urban development projects have been initiated in order to provide relief in the medium to long term future. This report is a summary of the most important developments in the market areas of office, retail, logistics, hotel and residential properties. Should you have any specific questions regarding Cologne's real estate market, please do not hesitate to get in touch with us. Yours faithfully Theodor J. Greif Managing Director / Owner Greif & Contzen Immobilien GmbH Greif & Contzen Beratungsgesellschaft mbh 2

3 Contents Executive summary 4 I. General socio-economic data 6 II. Cologne s real estate market 8 III. Investment market Office buildings Retail industry Industrial, storage and logistics Hotels Apartment buildings Condominiums 29 IV. Outlook 31 Greif & Contzen Beratungsgesellschaft mbh 3

4 Executive summary A new record was set in Cologne s property market in 2015 with property transactions amounting to a total value of around 5.5 billion euros. The transaction volume of 4.7 billion euros turned over in the record year of 2007 was thus surpassed by 17 percent. Office buildings Office buildings were the type of commercial properties that were traded most actively. The sale of the town hall in Deutz and an ensemble on Kaiser-Wilhelm-Ring were particularly big transactions in the triple-digit million euro range. The prime yield dropped further to currently 4.4 percent. A total of around 290,000 square metres of office space was taken up in 2015, exceeding the previous year's result by around 12 percent. The vacancy rate for office space decreased to 5.7 percent. Retail industry The department store Kaufhof von Hohe Straße changed hands in the course of the acquisition of GALERIA Kaufhof GmbH by Hudson s Bay Company. The purchasing price was in the triple-digit million euro range. Prime yields for retail buildings decreased further to currently 3.8 percent. Industrial, storage and logistics Transactions of industrial, storage and logistic properties in Cologne amounted to a total value of around 290 million euro in This constitutes a doubling compared to Demand exceeds availability considerably also in this area of real estate. The prime yield decreased significantly since the first quarter of 2015, dropping from 6.5 to 5.25 percent. Hotels The growth of Cologne s hospitality sector continued in Close to six million over-night stays were registered over the course of the year. Operators and investors are accordingly interested in hotels in Cologne. Motel One bought a projected hotel with more than 400 rooms on Cäcilienstraße. It is going to be the chain s third facility in Cologne s city centre. Greif & Contzen Beratungsgesellschaft mbh 4

5 Apartment buildings Considerable upwards adjustments have been made in recent population forecasts for Cologne. Additional demand will also be created by refugees. It is becoming apparent that the demand for housing space is going to exceed the volume of completed construction projects even more strongly than before. Increasing rents are therefore to be expected in the long term future. Purchasing prices in excess of 22-fold a property s annual net rent are realised in preferred locations. Condominiums Condominiums continue to be highly sought-after. Marketing periods for new construction projects are brief, even in the mid to upper price range. The transaction volume increased only slightly in 2015, rising by 1.5 percent compared to the previous year. Outlook Economic conditions are mostly positive. Institutes for economic research forecast an economic growth in a range between 1.6 and 2.2 per cent for. In the current capital market environment, real estate continues to perform better than many other asset types despite the decrease in initial yields. Interest rates will remain low for the foreseeable future, allowing for favourable financing. Cologne s growth perspective further provides a solid foundation for investment decisions. There is high demand across all types of properties. Demand will clearly exceed the availability in Cologne in once again. It is therefore to be expected that prices will increase further. In order to meet their yield requirements, investors will be buying properties beyond the most central locations as well as purchasing property development projects and existing properties with development potential. Whether a transaction volume on a similar scale as in the previous year can be generated will depend strongly on whether particularly large property ensembles will be offered for sale. There is no shortage of prospective buyers. Greif & Contzen Beratungsgesellschaft mbh 5

6 I. General socio-economic data Cologne is among Germany s three biggest industrial regions. There is a population of around 17 million people within a radius of 100 kilometres. Population (as of 31 Dec. 2014) 1,053,528 Population forecast for ,108,400 Average unemployment rate % Purchasing power in 2015 (MB Research) Centrality index in 2014 (MB Research) Rheinauhafen Greif & Contzen Infrastructure Cologne is an important hub of national and international transport systems. The infrastructure continues to be expanded. Cologne's motorway ring connects three important west-east (A4) and north-south axes (A1 and A3). There are two ICE railway stations in Cologne with direct connections to Berlin, Hamburg, Munich as well as Brussels and Paris. With four Rhine ports and the container terminal Eifeltor, Cologne is to be considered a significant distribution hub. Eifeltor is Germany's biggest transshipment terminal for combined transport and has been complemented by Terminal Nord in Cologne-Niehl since The international airport Cologne-Bonn was used by 10.3 million passengers in 2015 (7th busiest airport in Germany). The launch of Lufthansa s subsidiary Eurowings has prompted an Greif & Contzen Beratungsgesellschaft mbh 6

7 increased growth of passenger traffic. Cologne-Bonn airport, being the European FedEx and UPS hub, is Germany's third biggest cargo airport. Site with development prospects: Deutzer Hafen Greif & Contzen Major urban development projects Urban development is facing difficult challenges due to the persistent population growth and the scarcity in the property market. A number of major urban development projects is being pursued based on the urban master plan for Cologne s city centre designed by the planning office Albert Speer in The sites in question possess good links to the city centre and are intended for a mixed use of residential and commercial buildings. Plans are gradually being drawn up for various former industrial sites in the southern part of Mülheim. Construction work for the first subarea called Euroforum Nord is scheduled to commence this year. The first planning ideas for Deutzer Hafen have meanwhile been presented to the public and competition procedures are currently taking place and are expected to be concluded this coming autumn. The project s aim is to complete the first buildings by In 2015 there has been a competition with public participation to select a planning concept for the new urban district Parkstadt Süd. The winning design includes an extension of the green belt as well as a new mixed use area around the listed historic market hall. Greif & Contzen Beratungsgesellschaft mbh 7

8 , , Investment Market Cologne II. Cologne's real estate market With a total transaction volume of around 5.5 billion euros in 2015, the figures of the record year of 2007 were exceeded by about 17 percent. Transactions of large office buildings and mixed-use ensembles contributed substantially to the particularly high annual turnover. Transaction volume (bn. ) development 2006 to Source: Committee of experts of the City of Cologne (modified regarding 2013, 2014 and 2015) Transaction volume according to property types (bn. ) 2013, 2014, condominiums apartment buildings detached / semi detached houses office and retail buildings undeveloped land industrial Source: Committee of experts of the City of Cologne 2015 (modified regarding 2013, 2014 and 2015) Greif & Contzen Beratungsgesellschaft mbh 8

9 Anna-Schneider-Steig 22 and Rheinauhafen Greif & Contzen Yields in the fourth quarter of respectively 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Prime yield retail Prime yield logistics Prime yield office Government bond (yield, 10 years) Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 9

10 III. Investment market In 2015 there have been five sales of large property ensembles for prices in the three digit million euro range. With a total of around one billion euros, they accounted for some 18 percent of the total transaction volume and for about half of the turnover for commercial real estate. Purchases were focused in the city centre, however, all types of commercially used properties were also traded in less centrally located districts and in peripheral locations. Many investors proved willing to accept properties featuring more complex circumstances, such as mixed-use buildings or those requiring structural development. Selection of major transactions in 2015 Property (location) Type Estimated PP LANXESS arena mixed use approx. 440 m. (plus adjacent buildings; Deutz) Cologne Keys (Neustadt-Nord) office approx. 170 m. Commercial and residential estate mixed use approx. 110 m. (Bayenthal) Barthonia-Forum (Ehrenfeld) mixed use approx. 110 m. Kaufhof Hohe Strasse (Altstadt Nord) retail > 100 m. Deutsche Bank Ensemble (Altstadt Nord) office unknown Gürzenich Quartier (Altstadt Nord) office unknown Hotel project Motel One (Altstadt Nord) hotel (project) unknown Pullman Hotel (Altstadt Nord) hotel unknown Leonardo-Hotels (Lindenthal; Porz) hotel portfolio unknown Source: Greif & Contzen Research, Cologne, February Cologne s market experienced large scale participation by Asian investors, purchasing the town hall and LANXESS arena. The asset is sustained not only by the multi-purpose event hall but also by the surrounding buildings. Among those are in particular the town hall that is home to various city administration offices. The property ensemble Cologne Keys on Kaiser-Wilhelm-Ring that has Allianz Versicherung among its tenants, was sold and is now back in the hands of domestic owners. There are plans for dismantling part of the ensemble and replacing it with a new structure. Greif & Contzen Beratungsgesellschaft mbh 10

11 1. Office buildings Office buildings of all sizes were traded energetically in When the share of office space in large mixed-use ensembles that were sold is taken into account, it was the property type that contributed the largest share of the total transaction volume for commercial real estate. There were several international buyers as well as domestic ones. A number of investors were from Britain and northern America in particular. International investors did not only purchase high-priced properties but increasingly also medium-sized properties down to those in the single-digit million euro range. 2.0 Transaction volume office and retail properties (bn. ) development 2006 to Source: Committee of experts of the City of Cologne 2015 (modified regarding 2013, 2014 and 2015) A spatial analysis shows that the majority of transactions were once more focused in traditional city centre office locations such as Kölner Ringe and Bankenviertel. However, a number of properties - some of which are older buildings - were also sold in areas outside the city centre and in business estates where there is generally lower demand for office space than in the city centre. Investors with asset management capacity are particularly active in these areas. The market conditions for office letting are generally rather favourable for property owners. Available modern space in good locations is scarce. The vacancy rate is down to just 5.7 percent and completions have long been on a low level. The availability of new space is further decreased by owneroccupation and pre-letting. Greif & Contzen Beratungsgesellschaft mbh 11

12 Office space market 2015 Location Available space (m²) ¹ Vacant space (m²) Average annual take-up (m²) ² Benchmark rent ( /m²) ³ Innenstadt (City Centre) Bankenviertel 27,000 6,000 8, MediaPark 13,000 13,000 11, Rheinauhafen 26,000 18,000 7, Kölner Ringe 37,000 33,000 23, Deutz 98,000 16,000 21, Innenstadt Nord 64,000 42,000 30, Innenstadt Süd 6,000 6,000 12, Rheinufer Nord 2,000 2,000 8, Rheinufer Süd 16,000 12,000 7, Subtotal 289, , ,000 Districts on the left bank of the Rhine Innere Kanalstraße 14,000 14,000 7, Ehrenfeld 41,000 38,000 17, Braunsfeld 67,000 42,000 12, Ossendorf 19,000 19,000 17, Köln Nord 15,000 15,000 19, Köln West 23,000 23,000 18, Köln Süd 45,000 42,000 18, Subtotal 224, , ,000 Districts on the right bank of the Rhine Gremberghoven 39,000 39,000 12, Mülheim 95,000 24,000 14, Kalk 31,000 2,000 8, Köln Ost 37,000 34,000 10, Subtotal 202,000 99,000 44,000 Total 715, , ,000 ¹ The supply of available space consists of vacancies, space under construction and a certain amount of space that is still in planning stages. ² Specified as average value of the past five years. ³ The listed figures are base rent prices. Considerably higher or lower rents are occasionally agreed upon in individual cases. Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 12

13 Office space rents Rental levels in Cologne s office letting market are comparably moderate with low volatility. Tenants pay around EUR per square metre on average. The prime rent based on the guidelines by the German Society of Propety Researchers is EUR However, a special analysis of rental contracts concluded over the past few years, shows that top units in new and refurbished buildings in good to excellent locations are let for between and euros. Price potential for particularly high quality office space is therefore well beyond the current prime rent. See our report Office Space Market Cologne February for the detailed analysis. Yields on office buildings There has been a further increase of purchasing prices for office properties in The net initial yield for buildings in good locations is currently 4.8 percent on average. Purchasing prices for core properties currently range between 18 and 20-fold the property's annual cross income. Special circumstances in Munich aside, there has been a further significant decrease of prime yields when considering Germany s top locations in Cologne s figures continue to be around 40 basis points above those for Hamburg and Berlin and about on par with Frankfurt, Düsseldorf and Stuttgart. This means that for suitable products there is potential for further purchase price increases. Prime yields on office properties in Germany s top locations in 2015 Munich 3.65% Hamburg Berlin 4.00% 4.00% Frankfurt Düsseldorf Cologne Stuttgart 4.35% 4.40% 4.40% 4.50% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 13

14 Selection of office buildings under construction Property / location Completion Office space (m²) Neue Direktion Köln (Rheinufer Nord) around 21,400 Coeur Cologne (Innenstadt Nord) 2017 around 12,500 Leitradlofts (Ehrenfeld) * around 12,000 Gürzenich Quartier (Innenstadt Nord) around 11,000 Bundeswehr Personnel Office (Köln Nord) around 11,000 UoAS Public Administration (Köln Ost) 2017 around 10,000 Archiepiscopal Vocational College Cologne (Köln West) around 9,000 Nawi Med (Aachener Strasse West) around 8,400 Bank für Sozialwirtschaft (Rheinufer Nord) around 8,000 GHU 88 (Rheinufer Süd) around 5,600 ADAC Premises Köln (Kalk) around 5,000 Source: Greif & Contzen Research, Köln February ; * Leitradlofts: 1st construction phase with around 8,700 m², 2nd construction phase 2017 with around 3,300 m² Office ensemble sold in the Bankenviertel area Greif & Contzen Greif & Contzen Beratungsgesellschaft mbh 14

15 2. Retail industry Hohe Straße was at the centre of attention of property investors in One of the biggest property transactions in Cologne was the sale of the department store Kaufhof with access to Schildergasse. The new owners are a joint venture of the Canadian Hudson s Bay Company and Simon Property Group. Among further properties sold on Hohe Straße is the building number , a shop in which was rented by cosmetics retailers Lush last year. Further significant investment activity was attracted by new building projects and infill developments. Two older commercial buildings on Hohe Straße were replaced by a new one. The building is scheduled for completion in the first quarter of and it will account for around 1,000 square metres of retail space. Existing buildings are to be demolished on the corner of Hohe Straße and Gürzenichstraße and be replaced by around square metres of top quality retail space by The Forum Romanum used to be located in this spot in Roman times. Present-day Hohe Straße, then known as Cardo Maximus, was once the link between the forum and the northern city gates near today s cathedral. Retail locations in Cologne s city centre Greif & Contzen A particularly large unit of around 5,000 square metres was let on Schildergasse 94-96a. The Spanish fashion label Zara is planning to use the space to combine their three existing stores in Cologne. The new store is going to be Zara s biggest German store. Greif & Contzen Beratungsgesellschaft mbh 15

16 Selection of lettings in prime locations in 2015 Location Tenant Industry Rental space Schildergasse 94-96a ZARA clothing 5,000 m² Schildergasse 120 Reserved clothing 2,800 m² Schildergasse 72 Superdry clothing 1,800 m² Hohe Straße Lush cosmetics 215 m² Hohe Straße 96 Cadenzza jewellery 190 m² Source: Greif & Contzen Research, Cologne, February Selection of lettings in city centre locations in 2015 Location Tenant Industry Rental space Breite Straße dm drugstore 635 m² Gürzenich-Quartier GinYuu catering 500 m² Breite Straße 1 Brax clothing 360 m² Hahnenstraße 45 Hochzeitsrausch clothing 200 m² Ehrenstraße 94 Frittenwerk catering 110 m² Source: Greif & Contzen Research, Cologne, February Schildergasse Greif & Contzen Greif & Contzen Beratungsgesellschaft mbh 16

17 Rents in the retail industry Schildergasse and Hohe Straße are among Europe s busiest shopping streets. Prime rents of up to EUR 270 per sqm are realised in this area. Rents in further streets that are connected to Cologne s main shopping area range between EUR 40 and 120 per sqm, depending on their location. Retail location Schildergasse, Wallrafplatz Hohe Straße Neumarkt (northern part) Ehrenstraße Breite Straße, Mittelstraße Very good city centre locations (e.g. Apostelnstraße, Pfeilstraße) Very food locations in districts outside the city centre (e.g. Deutzer Freiheit, Dürener Str., Neusser Str., Rodenkirchener Hauptstr., Sülzburgstr., Venloer Str.) Prime rent* 270 /m² 250 /m² 120 /m² 100 /m² 80 /m² 40 /m² 30 /m² *ideal shop with up to 100 m² of retail space Source: Greif & Contzen Research, Cologne, February Prime rent for retail space ( /m²) development and forecast 2007 to Sources: Rheinische Immobilienbörse e.v.; forecast: Greif & Contzen Research Yields in the retail industry The prime yield for retail properties in Cologne has decreased to 3.8 per cent in 2015, putting Cologne roughly on par with a number of Germany s other top 7 cities. Yields are even lower in Munich only at just 3.5 percent. Greif & Contzen Beratungsgesellschaft mbh 17

18 Strong demand for retail real estate has therefore not only let to decreasing yields but also to a nationwide assimilation of prime yields. Purchase prices currently range mostly between 22 and 26-fold a property's annual gross income and can be even higher in individual cases. Shopping centres and large-scale retail shops currently achieve - depending on the type of property and its location - yields of 4.3 to 5.9 per cent. Current prime yields for retail properties In Germany s top locations Munich 3.50% Cologne Berlin Hamburg Frankfurt Düsseldorf Stuttgart 3.80% 3.80% 3.80% 3.80% 3.90% 3.90% 3.0% 3.5% 4.0% 4.5% 5.0% Source: Greif & Contzen Research, Cologne, February Current retail property developments in the city centre Property / location Due for Retail space completion (approx.) Revitalisation DuMont-Carré* 22,000 m² Hohe Straße 52 / Gürzenichstraße ,300 m² Gürzenich-Quartier** 1,900 m² Hohe Straße ,000 m² Coeur Cologne** m² Extension Weltstadthaus P&C unknown unknown Am Hof / Unter Goldschmied unknown unknown * Restructuring not fully completed in 2015 ** office and retail building Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 18

19 3. Industrial, storage and logistics The Cologne region is an important European traffic hub. With its high number and density of inhabitants and enterprises, the area is an important departure and arrival point for freight traffic. Owing to its existing infrastructure (freight traffic centre, Rhine ports, airport, motorway junctions) the region is also leading in the area of transshipping goods between rail, road, air and water ways. Industrial and logistics properties in Cologne and the surrounding region are highly sought-after assets as a result. Kelvinstraße 25 Greif & Contzen In recent years, sales activities were restrained by a number of factors. For one thing, there have been few construction projects within Cologne s city limits due to the regional pricing structure for undeveloped land as well as the trade tax rate, making it more cost effective to move to surrounding areas in many cases. In addition to this, many owners choose to hold on to their properties. The transaction volume in Cologne has almost doubled between 2014 and Commercial and industrial properties with a total value of around 290 million euros changed hands. The sharp increase shows that there is strong demand for such properties in Cologne and that investors have been able to draw upon a greater level of availability in Greif & Contzen Beratungsgesellschaft mbh 19

20 Transaction volume industrial real estate (m. ) development 2006 to Source: Committee of experts of the City of Cologne, March There has been a number of large scale transactions over the past year. Goodman bought a 56,000 square metre plot for development in the district of Merkenich in the north of Cologne. Fair Value REIT-AG took over a warehouse of around 10,000 square metres in direct ownership, which they had previously owned as part of a fund. The property is located in Merkenich as well. In December 2014 the company also sold a 24,000 square metre warehouse to an international joint venture in nearby Ossendorf. BEOS AG bought a storage facility of around 16,000 square metres in Marsdorf as part of a specialised fund. In the nearby town of Kerpen, Alcaro Invest bought a property with a plot size of around 100,000 square metres and around 60,000 square metres of warehouse space. Selection of sales in Cologne in 2015 Location Plot size (approx.) space (approx.) Storage Buyer Merkenich 56,000 m² unknown * Goodman Onyx L. Ossendorf unknown 24,000 m² MStarEurope Marsdorf unknown 16,000 m² BEOS AG Merkenich unknown 10,000 m² Fair Value REIT * yet to be developed, source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 20

21 Major lettings in 2015 Around 75,000 square metres of warehouse space were let in Cologne in This is about 17 percent less than in The decline in space takeup is partly due to the fact that during the past few years part of the demand for space was met by large scale central warehouses. Many companies are using logistics facilities that are located beyond Cologne s city limits. British online retailers AO, for example, are establishing their future European headquarters in Bergheim s industrial estate. Last year and earlier this year, respectively, they rented two warehouses in the surrounding area featuring a floorspace of around 10,000 sqm each. One of these properties is located in Bedburg, the other one is the property that was bought by Alcaro Invest in Kerpen. Take-up of warehouse space in these areas is not included in the letting figures indicated above. Selection of lettings in Cologne in 2015 Rented space Tenant Location Type (approx.) unknown Merkenich warehouse 12,000 m² Jump Management Dellbrück warehouse 2,700 m² LaserTag Ossendorf warehouse 2,600 m² Media company Ossendorf warehouse 2,000 m² auction house Lövenich warehouse 2,000 m² Ron Lion Schlafsysteme Lövenich warehouse 1,900 m² Rhein Maas Vertriebs GbR Marsdorf warehouse 1,800 m² Forwarding company Porz warehouse 1,500 m² Source: Greif & Contzen Research, Cologne February Rents for storage and distribution space in Cologne in 2015 New properties Warehouse space in industrial estates Service space Adjacent office space Existing properties Warehouse space in industrial estates Warehouse space in other locations Service space Adjacent office space Source: Greif & Contzen Research, Cologne, February /m² /m² /m² /m² /m² /m² /m² Greif & Contzen Beratungsgesellschaft mbh 21

22 Yields on logistics facilities Investors willingness to pay high prices for logistics properties has increased significantly over the past year. Germany s top locations, with the exception of Berlin, are meanwhile featuring a homogeneous prime yield of 5.25 percent. A specific ranking of these cities according to purchasing prices is therefore not possible at this point. In Cologne the yield gap between industrial and office properties has decreased to just 0.85 percent. There has been a significant increase of investors confidence in logistics properties. Prime yields on logistics properties in Germany s top locations in 2015 Frankfurt Munich Hamburg Düsseldorf Cologne Stuttgart Berlin 5.25% 5.25% 5.25% 5.25% 5.25% 5.25% 5.40% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% Source: Greif & Contzen Research, Cologne, February For more in-depth analyses, please see our latest report Industrial Property Market - Industrial / Storage / Logistics Cologne and Surrounding Region 2015 Greif & Contzen Beratungsgesellschaft mbh 22

23 25,371 28,817 29,073 28,693 28,607 32,666 32,154 Investment Market Cologne 4. Hotels 2015 was another growth year for Cologne s hospitality industry. The number of overnight stays increased by more than 4 percent from 5.7 million in 2014 to almost 6 million stays. The number of available beds decreased slightly while the occupancy rate of beds in the market increased further. Income per room rose by more than 10 percent, which is above-average even in national comparison. In the economic survey conducted by Cologne s Chamber of Commerce and Industry in early, companies from the hotel industry assessed the business situation as particularly positive as a result. Beds provided and occupancy rate in Cologne 2009 to ,000 35,000 30,000 25,000 20,000 15,000 10, % 47.0 % 47.4 % 47.6 % 48.4 % 48.7 % 50.3% 5, Source: Landesamt für Statistik NRW and KölnTourismus GmbH A number of investors expanded their activities in Cologne in Motel One decided to acquire the hotel projected by HOCHTIEF Projektentwicklung on Cäcilienstraße near Neumarkt. It is going to be the chain s third branch in Cologne in addition to their hotels at Waidmarkt and MediaPark. Motel One are therefore planning to operate a capacity of more than 1,000 rooms in Cologne by In the final quarter of the year, Art-Invest bought the five star city centre hotel Pullman with 275 rooms. Art-Invest also purchased the B&B Hotel near the trade fair grounds as part of a sale and lease back transaction including five further properties. Fattal Group from Israel sold the hotels at Stadtgarten and the airport on to the Swedish investment firm Pandox. Fattal Group had bought the hotels as recently as Greif & Contzen Beratungsgesellschaft mbh 23

24 Transactions in 2015 Hotel (location) Rooms Buyer Motel One (3*, project, Cäcilienstraße) 424 Motel One Leonardo Hotels (4*, Dürener Straße, Waldstraße) 327 Pandox Pullman Hotel (5*, Helenenstraße) 275 Art-Invest B&B (2*, portfolio, Gummersbacher Straße) 109 Art-Invest Source: Greif & Contzen Research, Cologne, February Hospitality organised by hotel chains continues to be on the rise in Cologne. The project development company GBI has announced that they are going to convert the former premises of Gothaer Versicherung in a multi-storey building on Perlengraben into a Holiday Inn Express Hotel. It is going to be the brand s biggest European branch featuring 323 rooms. The property was acquired in A new branch of the life-style oriented hotel group 25 is due to open in the circular building of Gerling Quartier, the Gerling insurance group s former premises in The hotel will have 200 rooms. A new themed hotel has also been announced in the context of planning Motorworld Köln. Part of the former airport grounds at the historic air traffic site Butzweilerhof are to be converted into an automotive theme park focusing on classic cars. The design for the hotel provides for in-room parking for guests staying in rooms on the ground floor. Current hotel projects Hotel (location) Opening Rooms Motel One Cäcilienstraße (3*, city centre) 2018* hours (4*, city centre) 2018* 200 Refurbishment Dom Hotel (5*+, city centre) 2018* unknown Holiday Inn Express (3*, city centre) 2017* 323 Motorworld Köln (4*, Ossendorf) 2017* 120 Refurbishment Steigenberger (4*, city centre) * 301 Refurbishment Dorint Hotel (3*, Junkersdorf) Apartment hotel Eigelstein, Savoy (city centre) Hotel zur Malzmühle (3*, city centre) B&B Hotel (2*, Deutzer Feld) *scheduled Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 24

25 Owners of existing hotel buildings in Cologne also work towards improving their market position by extensively modernising their properties. Recent project development activities show on the one hand that there is strong interest from investors and operators that are already established in Cologne as well as from new market participants. Construction projects for new buildings, on the other hand, are indicative of the profitability and success potential for hotel concepts in the real estate market. A number of current projects in Cologne include extensive reconstruction or the demolishing of existing buildings in the city centre that would also be suitable for other forms of use. Motel One, Cäcilienstraße 32 HOCHTIEF Projektentwicklung GmbH Gatermann + Schossig Greif & Contzen Beratungsgesellschaft mbh 25

26 5. Apartment buildings Apartment buildings with a total value of around 949 million euros were traded in Cologne in This means an increase by around 5 percent over Considering the predicted population increase, demand for housing is likely to increase also over the long term. An estimated 6,000 housing units need to be built per year. The results of such analyses are even higher, if long-term housing for refugees is taken into account. Completions increased by around 18 percent between 2012 and However, with around 3,700 units completed in 2014, these continue to be well below the required level. As a result there is a lot of tension in the housing market that is characterised by rising rents and purchasing prices. Transaction volume apartment buildings (m. ) development 2006 to ,100 1, Source: Committee of experts of the City of Cologne The construction of apartment buildings and as a result also the investment volume are restrained by the lack of available residential building land. In addition to this, selling individual condominiums is often more lucrative for property developers than selling the entire property. In the medium to long term, more apartment buildings will become available through large urban development projects in Mülheim, Parkstadt Süd and Deutzer Hafen. These development projects will include both privately financed and publicly subsidised construction work. Up until then, completions will remain far from meeting demand. It may be advisable for owners of existing properties to look into short-term investment alternatives such as extensions, adding extra storeys or loft conversions. Greif & Contzen Beratungsgesellschaft mbh 26

27 Rents and purchase prices for apartment buildings Both the prime rent and the average rent have increased during the past few years, standing at EUR and 8.80 in Considering the demand surplus in the housing market that will continue in the future, rents are likely to rise further. The highest rents that are paid in exceptional locations and a select number of premium properties range up to EUR 21 per square metre Rents for flats according to Cologne s rent index development 2006 to Prime rent Average rent Source: Rheinische Immobilienbörse e.v. i.a.: Kölner Mietspiegel Private investors are particularly interested in this secure asset class. Purchasing prices for apartment buildings have increased further in In favoured residential areas, prices range mostly between 20 and 28-fold the properties annual gross income. Meanwhile, buying decisions are made increasingly for the purpose of capital preservation rather than yield based. Large residential estates are particularly sought-after by institutional investors. A significant transaction in 2015 took place on Bonner Straße in the district of Bayenthal: A fund of utility companies paid around 110 million euros for an ensemble including 300 apartments and more than 40 commercial units. Greif & Contzen Beratungsgesellschaft mbh 27

28 Purchase prices as multiples of a property s annual rent development and forecast 2006 to Source: Committee of experts of the City of Cologne 2015, forecast: Greif & Contzen Research Investment property in Köln Mülheim Greif & Contzen Greif & Contzen Beratungsgesellschaft mbh 28

29 6. Condominiums Condominiums continue to be in high demand in Cologne. There was another slight increase of the transaction volume in 2015, rising by 1.5 percent to around 1.4 billion euros. The availability of newly constructed condominiums in the city centre is limited. Property development projects are scarce in this area, owing to the already very dense building situation. New large-scale construction projects are mostly limited to conversion areas. In the district of Lindenthal, the new ensemble Neue Paulihöfe is being built along an east-west axis. Park Linné in Braunsfeld and the ensembles Klostergärten and Klosterhöfen in Junkersdorf are further examples of residential projects under construction. All of these sites have been used for commercial purposes in the past. In addition to various local property developers, there are also a number of national players participating in this highly coveted market segment. Transaction volume condominiums and part-ownership (m. ) development 2006 to ,600 1,400 1,200 1, Source: Committee of experts of the city of Cologne, the figure for 2015 is a preliminary projection Purchasing prices for both new and older properties have increased further in 2014 to an average of EUR 3,800 and 3,100 per square metre, respectively. Prices can be above EUR 10,000 in the area of luxury properties. There has even been a case of an outstandingly located top property being sold for EUR 17,000 per square metre. Greif & Contzen Beratungsgesellschaft mbh 29

30 Development of prices for condominiums ( m²) in /m² 2005 to ,000 15,000 13,000 11,000 9,000 7,000 5,000 3,000 1, built before 1924 average built before 1924 highest built average built 2010 onwards average* built highest built 2010 onwards highest* * including units that were sold before completion Source: Committee of experts of the City of Cologne 2015 Selection of current residential projects Project (location) Completion (approx.) Residential units Neue Paulihöfe (Braunsfeld) condominiums Wohnen am Butzweilerhof (Ossendorf) condominiums Halle17 (Clouth site, Nippes) residential units Pandion FINE (Clouth site, Nippes) condominiums Von-Groote-Gärten (Marienburg) condominiums Reiterstaffel, 2nd part (Marienburg) residential units Klostergärten / Klosterhöfe (Junkersd.) 2017 / 550 residential units FLOW LIVING(Bayenthal) 2017 / 114 condominiums Pandion Balance (Altstadt Nord) 84 condominiums Clouth WA residential units Park Linné (Braunsfeld) / residential units Gerling Quartier, 2nd part (city centre) unknown 90 condominiums Source: Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 30

31 IV. Outlook Investors are facing ever increasing challenges in the capital market. Government bonds are hardly profitable any longer and the international stock markets have recently been subject to significant losses. Properties being real assets are showing low volatility by comparison and prices continue to increase. Demand for real estate assets by both institutional and private investors is therefore not going to decrease in either. There is also no indication for a rise of interest levels in the eurozone, causing liquidity to remain high. The conditions for financing portfolio transactions or acquiring large property ensembles continue to be favourable as a result. Real estate banks have further been increasing their commitment as lenders for property projects and purchases in second-order locations. Germany s economic conditions in regard to property investments are to be considered positive and stable by international comparison. Institutes for economic research predict that the German GDP will increase by between 1.6 and 2.2 percent in, despite the economic weakening in China and a number of emerging countries. Provided that sufficient properties become available to the market in, it is to be expected that there will once more be a high transaction volume in the area of commercial real estate. Less centrally located properties and those in need for improvement are also being traded. Real estate prices are likely to continue rising, even though yields are already very low. ifw for Germany ifo for Germany RWI for Germany ifw for Eurozone ifo for Eurozone RWI for Eurozone Economic forecasts for Germany and the Eurozone GDP 2015 und -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2015 Source: Forecast as of Dec. 2015, data compiled by Greif & Contzen Research, Cologne, February Greif & Contzen Beratungsgesellschaft mbh 31

32 If you have any questions about Cologne's property market, please contact: Thorsten Göbel Head of Investment Division GREIF & CONTZEN Immobilienmakler GmbH Tel: Frank Pönisch Managing Director GREIF & CONTZEN Beratungsgesellschaft mbh Tel: Bettina Braun Coordination of brokerage/research/analyses GREIF & CONTZEN Immobilienmakler GmbH Tel: Dr. Jan Schubert Consulting, Research GREIF & CONTZEN Beratungsgesellschaft mbh Tel: Greif & Contzen Beratungsgesellschaft mbh 32

33 CONTACT Greif & Contzen Immobilien GmbH Pferdmengesstr Köln The information contained in this report is in part based on public sources, information provided by third parties and our own calculations. We have compiled this information with the greatest care and attention and are providing the information to the best of our knowledge. However, any liability for the completeness and correctness of any of the information, contents or citations contained shall be excluded. The information compiled and provided in this report shall not establish any kind of consulting relationship with the recipient. Greif & Contzen Beratungsgesellschaft mbh,. All rights reserved. These documents are our intellectual property and subject to our copyright. They are intended solely for the recipient. Any form of reproduction, amendments or distribution to third parties, in whole or in part, shall require our prior explicit agreement in writing. Where we do not hold the copyright on grounds of third-party-copyright, we refer to the copyright of the third party. Greif & Contzen Beratungsgesellschaft mbh 33