Nevertheless, it is undeniable that the effects of Covid-19 continue to have a pervasive impact on our daily lives. In contrast, many investors and market participants have largely overcome the uncertainty that was still prevalent at the beginning of the year. As a result, the transaction volume at the end of the first half of the year was still relatively modest at around EUR 0.83 billion. However, as the year progressed, investor confidence grew and, following a phenomenal year-end spurt, the total result for the year was EUR 3.25 billion, which even surpassed the previous record year of 2019.

Contrary to many voices questioning the necessity of office real estate, it once again clearly emerged as the strongest asset class at the end of the year. With a share of over 50%, it accounted for the lion's share of the total investment volume. The figures speak for themselves, allowing us to conclude that office real estate will continue to play a significant role in the market despite varying home office concepts.

Our cathedral city has weathered the second year of the pandemic more than well. Vacancy rates have now fallen again after a slight increase in 2020. A significant increase in maximum and average rents was also achieved. This makes it irrevocably clear that Cologne is now and will continue to be an attractive and stable location in the TOP 7.

Transaction volume

Photo finish! New record result at the last minute

At the end of the year, there was indeed a photo finish between the record years of 2019 and 2021. Thanks to a phenomenal final spurt with several deals in the triple-digit million range, the transaction volume (TAV) for the full year 2021 broke through the EUR 3 billion barrier and set a new record at the last moment. over 60% of the total annual result was achieved in the fourth quarter of the year (Q4 2021: EUR 2.02 billion).

The acquisition of fund shares in a former Oppenheim fund played a significant role in the record result. The Anglo-Saxon RFR Holding acquired the shares from Deutsche Bank for approximately EUR 600 million. The properties include parts of the exhibition center, the Rheinparks, and the Rheinhallen in Cologne-Deutz.

The second-largest deal of the year was the Laurenz Carré project development in the immediate vicinity of Cologne Cathedral. Corestate secured the property from the Gerchgroup in a forward deal. In addition to the neighborhood development with office, restaurant, retail, and hotel space, the deal also includes the former Senatshotel.

US financial investor TPG Real Estate Partners has now sold its portfolio in the technology park in Cologne-Braunsfeld after holding it for two years. TPG had only acquired the three properties (Forum, Neues TechnologieZentrum, Office Center West) from Swedish investment company EQT at the end of 2019. This portfolio deal ranks third among the largest deals of 2021.

The five largest deals, some of which are well above the EUR 100 million mark, thus account for almost half of the total transaction volume in 2021.

Buyer & seller groups

Investment and asset managers on a shopping spree in Cologne

Investment and asset managers were able to fill their shopping carts well in Cologne in 2021. With a share of approximately 47%, this buyer group accounted for almost half of the total transaction volume.

On the seller side, there was a four-way battle. Project developers/builders (24%) were slightly ahead, closely followed by private investors/family offices/owner-occupiers (22%), banks (21%) and investment/asset managers (approx. 19%).

International investors were again very active on the Cologne market in 2021, accounting for 49% of transactions. American and Luxembourg capital in particular was invested in Cologne real estate. Nevertheless, domestic investors were also very present on the market again, accounting for 51% of transactions. On the seller side, the share of domestic investors was significantly higher than that of international investors (79% vs. 21%).

Asset classes

Office real estate regains top position

Looking at the year as a whole, office properties always account for the largest share of market activity in Cologne. In 2021, more than half of the transaction volume was invested in the office asset class (54.6%). While office buildings lagged behind in terms of percentage in the first half of 2021, the second half of the year saw a surge in office property transfers.

At the end of the first half of 2021, mixed-use properties still ranked first. In the second half of the year, there were fewer transactions in the mixed-use sector. Nevertheless, this asset class ranks behind office properties with a share of over 18.4%. The largest transaction in this asset class was the Gerchgroup's project development, the Laurenz Carrè & Senatshotel, in Cologne's Altstadt-Nord district.

After retail properties, with the exception of food retail, were among the losers in 2020, this asset class recovered somewhat in 2021. With a share of almost 10%, retail is once again overtaking development sites and logistics/light industrial properties to take third place.

Yield

Gross initial yields are falling slightly for office properties and more sharply in the logistics segment

Office properties remain in high demand. The uncertainties and fears at the beginning of the pandemic that office properties would lose importance due to home office concepts have not been confirmed after almost two years. Vacancy rates fell again in 2021 after rising in 2020. Nevertheless, strong tenant creditworthiness and long lease terms have become even more important criteria for investors. As a result, risk minimization has also led to slightly lower yields. Compared to the previous year (2020), this means a prime yield of 2.85% (-15 basis points).

The importance of logistics/light industrial real estate remains high. Supply, especially in the Cologne metropolitan area, is far from meeting demand. This is also reflected in gross initial yields, which continue to decline and peaked at 3.5%.

Locations

Cologne's old town outstrips other districts

With a total investment volume of EUR 1,076 million (approx. 33.2%), Altstadt-Nord once again towers above all other districts. This represents almost a third of total sales. Deutz follows with 19.3%, the only district on the right bank of the Rhine in the top 5. Ehrenfeld/Braunsfeld follows closely behind, also still in double digits with a combined share of 18.1%. The Altstadt-Süd district trails some way behind with 8%.

With an estimated purchase price of over EUR 130 million, Union Investment secured the Cäcilium here. With the takeover of Dream Global, the property became the property of Blackstone at the end of 2019. Marsdorf ranks fifth, accounting for 5.1% of the transaction volume. The largest deal in this district was the sale of Horbeller Straße 12, which AVI had acquired five years ago. Following extensive renovation and some new additions, the property was sold to AEW as a core asset.

Outlook

Conclusion and forecast

After a phenomenal year-end spurt, the Cologne investment market narrowly missed matching the transaction volume of the record year 2019.

Due to the ongoing pandemic, activity in the first three quarters of 2021 was still relatively subdued. Despite a few larger transactions, investors were rather cautious, especially in the first half of the year, as was already the case in the previous year.

However, the strong fourth quarter clearly shows that Cologne can hold its own as an important investment location in Germany even in times of crisis. Against the backdrop of transactions still pending beyond the turn of the year, the start of the year is also shaping up to be strong.

The cathedral city is looking forward to the new investment year with optimism. At this point in time, there is little sign of the initial uncertainty among investors at the beginning of the year. With demand remaining high, especially in the CORE product segment, there is little to stand in the way of a successful 2022.

We also expect the year 2022 to deliver a very good overall result, which, as in 2021, will be well above the five-year average (five-year average: EUR 2.44 billion).