Sirius continues to operate primarily in Germany but also in the UK – two of the top five economies in the world – where it owns and manages a well-diversified portfolio of mature business park assets, as well as those where there is an opportunity to add value through asset management.
The integration of BizSpace, a leading provider of regional flexible workspace across the UK acquired by the Company in 2021, continued apace this year, driving meaningful operational and financial synergies underpinned by the Company’s internal operating platform.
In Germany, the primary focus is to build a “critical mass” around its “big seven” cities of: Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich. The Company has a secondary focus on a selection of key border towns where we can reap the benefits of markets on both sides of the border and the periphery of the “big seven” cities.
The Company provides 1.8 million sqm of manufacturing, storage and office space across Germany. The Company’s tenant base is diverse ranging from multinational corporations and government agencies to SMEs within the German Mittelstand and individual tenants.
In the UK, BizSpace is a leading provider of regional flexible workspace, offering office, studio and workshop units to a wide range of businesses in convenient regional locations. The Company provides 4.2 million sq ft across 70 sites.
BizSpace is equipped with a high-quality portfolio in a supply constrained market that offers significant organic growth potential in rental pricing. BizSpace’s UK tenant base is similarly diverse to that which the Company serves in Germany, ranging from multinational businesses to manufacturing-focused SMEs and individual tenants
The German market
Germany remains comfortably the largest economy in the European Union and the fourth largest in the world after USA, China and Japan. It has maintained its reputation as an industrial powerhouse with a strong export-focused economy characterised by low unemployment.
In early 2023, the European Commission predicted 0.2% GDP growth in Germany in 2023 and a further 1.3% in 2024, with inflation falling throughout 2023 to a predicted 2.5% in 2024. Germany responded strongly to events in Ukraine and as of January 2023 had eliminated its reliance on Russian energy.(1)
The German Bundesbank expects a gradual economic recovery in the second half of 2023, underpinned by growth in export demand and commodity price pressures diminishing, as well as real wages growing as inflation falls.(2)
Commercial real estate investment volumes in Germany in 2022 were €54.1 billion according to BNP Paribas compared to the two-year high investment figure recorded in 2021 of €64.1 billion. Whilst this represents a 16% drop year over year, 2021 was the second highest year on record, and the current year is in line with the ten year average. Moreover, this represents the eighth consecutive year with investment volumes above €50 billion, showcasing ongoing investment resilience.
Once again, the majority of sales volume was registered in and around Germany’s seven major cities (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart), totalling €28.2 billion.
Berlin led the way with €8.5 billion invested, the fourth highest total on record. Frankfurt followed with €5.1 billion recorded, closely followed by Hamburg at €4.9 billion.
Munich followed in fourth place with just under €4.3 billion, with Düsseldorf on €2.9 billion, Stuttgart on €1.4 billion and Cologne on €1.1 billion.
Looking at the various real estate sectors, investment in offices declined to approximately €22.3 billion of investments, representing a drop in the share of overall investment by 7% to 41% year on year. Taking up some of this share was logistics and light industrial assets, which increased by 3.3% to €10.1 billion, accounting for almost 19% of overall investment and building on a previous all-time high set in 2021 – representing two consecutive record years of investment in the asset class.
Foreign investors were responsible for around 44.5% of total investment levels, growing by almost 6% year on year.(3)
Taking a closer look at Germany’s so called “Unternehmensimmobilien” – a distinct asset class of German multi-use and multi-let commercial properties, which is home to the heart of the Germany economy and covers the bulk of Sirius’s properties – we can see that the asset class outperformed other asset classes in terms of investment in the first half of 2022.
Compared with H1 2021, transaction volume in the asset class increased by 6.9% to €1.6 billion, underpinned by increased investor interest in business parks and light manufacturing assets in particular.
The Unternehmensimmobilien has been resilient as an asset class during past major economic events, including the pandemic, and this has continued throughout market disruptions caused by events in Ukraine.
This is due to multiple factors such as the flexibility and diversity inbuilt within multi-tenanted business parks, the tendency for companies engaged in production and manufacturing to respond to economic contractions by reducing output rather than space, and the depth of the Mittelstand market.(4)
The UK market
The UK market The OECD forecasts a return to growth for the UK economy in 2024, following a contraction of 0.4% in 2023, as well as forecasting inflation to decline to 2.7% in 2024. The latest data on inward investment in the UK, from 2021, showed an increase of £83.1 billion to just over £2 trillion.(5)
Commercial real estate investment in the UK in 2022 was £56 billion, representing a 5% increase on the ten year average.(6)
Looking back over 2022, supply of spaces increased by 14%, but remained 27% below the five year annual average, which, combined with strong demand, saw average rents rise by 10%. This was an increase from 2021 which saw annual growth of 9%.
Despite a slowdown in investment in Q4 of 2022, according to Colliers, annual investment activity in industrial property for the year as a whole amounted to £13.8 billion, making 2022 the second largest year for industrial real estate investment in the UK on record after 2021.
Looking ahead to 2023, CBRE expects pricing to stabilise in 2023 across asset classes. In particular, the logistics and light industrial market will experience continued strong demand driven by increased requirements for supply chain flexibility combined with vacancies in these spaces at all-time lows. In addition, demand for edge of town locations is forecast to increase.