Cologne’s investment market continues to do well, following the record turnover of 3.8 billion euros generated in 2021. Greif & Contzen’s researchers expect that demand will remain high and prices will continue to rise.

Thorsten Neugebauer, Head of Investment Properties at Greif & Contzen Immobilienmakler GmbH in Cologne, describes 2021 as “an outstanding year” for Cologne’s investment market. A new record was set as commercial properties for more than 3.8 billion euros changed hands, and the five-year average was exceeded by over 70 percent. Record transaction volumes were also achieved with apartment buildings and condominiums, and purchasing prices reached new all-time highs across various segments. What’s more, one of Germany’s biggest office properties was sold in Cologne last year. Around 1.1 billion euros were turned over in the transactions concerning the fund properties Rheinpark-Metropole and Koelnmesse alone.

Inflation and pressure on capital
The big question is now: where do we go from here? How are the general conditions for real estate investments going to develop? Prices for property investments increased further in recent months, due to inflation and pressure on capital that investors are facing owing to the low interest rates. Inflation was fuelled by energy costs in particular. This trend is likely to intensify in the weeks ahead, owing to the war in Ukraine and a possible shortage of gas and other raw materials. Some economists expect an inflation rate of over five percent in 2022. Hopes that interest rates would increase over the next few months, thus allowing for alternative investments, were dampened by the outbreak of the Ukraine conflict. COVID-19, supply shortages and sustainability will remain further key challenges in the real estate investment market over the next several months, and will encourage further price hikes.

Retail buildings and hotels: the situation remains restrained
And yet: national and international investors continue to show a strong interest in real estate in the Cologne region. The only exceptions to this rule are pure retail buildings and hotels. The situation remains restrained in these segments, and many potential buyers are acting with caution. “A rise in demand and growing transaction volumes are to be expected in these segments, too, once the pandemic-related restrictions disappear permanently,” says Neugebauer.

Dynamic start of the year
The year started off rather dynamically. “There are some interesting properties available, and demand is high,” explains Thorsten Neugebauer. The experts from Greif & Contzen expect that demand will increase even more, especially for residential properties. “Residential real estate is a traditional asset to compensate for inflation, especially for private investors,” Neugebauer adds. “However, yields are going to decrease further. So, we are increasingly talking about value preservation rather than profits.”

Rising prices for industrial and logistics properties
Greif & Contzen’s researchers expect that prices will increase for industrial and logistics properties in particular, as a too low availability of properties meets good potential for rent increases and very high investor demand. The prime yield dropped to 3.4 percent in this segment in the past year.

Office properties adapt to new requirements
Concerning office properties, it remains to be seen, how demand is going to develop. At the start of the COVID-19 pandemic there was talk about a shift towards working from home causing a decrease in demand for office premises. However, it can now be observed that companies still have high demand for modern office space. “In the future, there will be more modernisation measures and smart space concepts will be realised more frequently. Tenants want office premises that promote creativity and communication, and that are comfortable for staff members and customers alike,” Neugebauer points out. “We assume that tenants and investors can be found wherever these requirements are met.” The prime yield on office buildings decreased to 2.7 percent in 2021. Investment requirements in older residential buildings Prices are rising, also for residential properties. Housing will remain scarce in Cologne in the years ahead. Condominiums in new buildings in popular neighbourhoods in Cologne cost between EUR 6,000 and EUR 7,000 per square metre even now. However, it may become harder to find buyers, who are willing to accept the very high asking prices for older residential buildings. Energy-related investment needs and the related high costs must be taken into account more urgently when buying a property these days. At the same time, inflation is going to be a strain on household budgets in the coming months, and people will have less money available for rent as a result.

Demand continues to be far greater than the supply
Cologne’s property market remains very popular among investors, despite inflation, changes to interest rates and trends towards higher prices in many segments. Demand continues to be far greater than the supply. Greif & Contzen’s property experts expect that the 3-billion-euro mark - and therefore the five-year average - will be surpassed once again in 2022, despite current global affairs.