Research

DEMIRE & bulwiengesa: Joint Study on Office Investments in Secondary Cities – higher Yields and lower Risk than in A-cities

DEMIRE is represented by its real estate investments in 15 out of 16 federal states and concentrates its investment on the so-called “Secondary Locations”. DEMIRE is convinced that the “Secondary Locations” in Germany, where it has extensive local real estate know-how and network, offer attractive, higher and at the same time more stable framework parameters than the real estate markets in the top 7 locations.

To confirm this market trend, DEMIRE regularly publishes market studies focusing on the investment opportunities in German office real estate in secondary locations together with bulwiengesa, one of the largest independent analysis companies in the real estate sector. The most recent study was published by DEMIRE in April 2018. Based on the analysis of a total of 31 cities, the study shows that the secondary locations have been able to show a predominantly positive development in recent years and thus represent an interesting investment opportunity compared to the top 7 locations. The top 7 locations were able to achieve rental growth rates of 2.8% on average. In some secondary locations, even higher rent increases of up to 40% were achieved.

Due to the lack of investment opportunities and the low return opportunities in the A markets, real estate investors are increasingly investing in secondary locations. In 2017, around 15 billion euros were invested in office real estate away from the major cities. The reason for the increased interest is the higher average return with a high stability of the rental level in secondary locations. As a result of increasing demand, the net initial yields in the secondary locations will also drop to new lows. Nevertheless, the yield spread between A-markets and secondary locations remains high at 2%. The volatility of rents and vacancy rates in the secondary locations is much lower compared to A locations.

The current full study can be found here: Office Real Estate Market Study – Investment Opportunities in Secondary Locations

The first study from 2017 can be found here: Joint Study on Office Investments in Secondary Cities