Investing in Frankfurt's future: the strategic resilience of prime real estate amid market headwinds

In an era marked by economic turbulence, Frankfurt's commercial real estate is adapting, focusing on the resilience of prime properties and the transformative trends in the office sector.

Higher interest rates and a lingering fear of recession brought more than a decade of strong growth in the European commercial real estate market to a shuddering halt. The sector faces a challenging period marked by declining prices and low transaction volumes, reflecting the broader struggle across European markets to adapt to a rapidly changing economic landscape.

Despite these challenges, segments within the sector, particularly prime assets, show resilience. The limited supply resulting from subdued construction activity buffers current price pressures and have led to a marked differentiation between prime and non-prime assets and locations. Additionally, the inflation-hedge role of real estate continues to draw long-term investment, offering some counterbalance to the prevailing headwinds.

In Germany, yields are on an upward trajectory, particularly in office and commercial buildings. By the end of the third quarter of 2023, office prime yields in the top seven German locations (Berlin Cologne, Düsseldorf, Frankfurt, Hamburg, München and Stuttgart) averaged around 4.6 per cent, a notable increase from previous quarters. This rise is attributed to several factors, including increasing bank margins and risk premiums.

In the business capital of Frankfurt, the office real estate sector, a critical component of the city’s commercial market, is undergoing a structural transformation, driven mainly by changes in occupier preferences. There is a growing emphasis on locations and high-quality properties.

Consequently, office yields are undergoing significant adjustments to align with new market realities. The focus on locations and quality assets reflects a broader market response to the evolving demands of modern workspaces, underlining the need for strategic investment and development approaches in the face of a changing economic environment.

This means the underlying strength of Frankfurt, a city synonymous with financial prowess and cosmopolitan diversity, continues to be attractive to investors. PATRIZIA has several assets that showcase why Frankfurt's stability, growing economy and transformation into a vibrant metropolis make it an ideal city for real estate investments.

A blend of modern living and commercial viability

Gravensteiner Arcaden, located at Gravensteiner Platz in Frankfurt's Preungesheim district, is a great example of modern mixed-use development. Constructed by the WILMA Immobilien Group in 2016, this property boasts 16,400 sqm of space, encompassing residential, commercial and retail areas. Its strategic location in the thriving Frankfurter Bogen area, coupled with a diverse tenant mix including Tegut, a Swiss-owner supermarket chain, and DM, a chain of retail stores selling cosmetics and household products, makes it a valuable asset.

Michael Winkler, Associate Director, Asset Management at PATRIZIA, describes it as “a great core investment in an established environment with many opportunities,” highlighting its appeal in an evolving neighbourhood. The property's sustainable features, such as LED lighting and preparations for e-mobility charging stations, align with modern ESG standards, and most residential leases now contain sustainability clauses.

The area offers a school and a kindergarten in the immediate vicinity and a good connection to public transport, with Frankfurt city centre less than a 20-minute ride away. All this, plus its green area core, has seen Gravensteiner Platz become a dynamic hub for older and younger generations and its popularity continues to soar.

A sky-high icon of sustainability

The Coba Tower, a distinguished part of Frankfurt’s skyline, represents a landmark investment. Designed by Sir Norman Foster and home to Commerzbank’s headquarters, this 259-meter skyscraper is an architectural marvel and a beacon of green architecture. Its construction in 1997 set new standards in energy-efficient design, including natural ventilation and green electricity.

The tower's nine sky gardens embody an innovative approach to work environments, offering relaxation spaces and enhancing the building’s aesthetic appeal. This property’s combination of location, prestigious tenant, and commitment to sustainability makes it a standout choice for a long-term value investment.

“We are happily and proud to have such a famous landmark property within our portfolio,” says Milan Perovic, Associate Director, Asset Management. “It set standards in green-friendly architecture back in the 1990s, and it continues to do so today through our relationship with an excellent tenant.”

The building has been wholly supplied with green electricity since 2008 and, like all Commerzbank buildings, is cleaned exclusively with biodegradable materials. In 2009, Frankfurt recognised Coba Tower as a ‘Green Building Frankfurt.’

Marrying elegance with efficiency

MainTor Panorama at Neue Mainzer Strasse exemplifies high-class office space with spectacular views of the Main River. Developed by Christoph Maeckler, a renowned architect and city planner, and completed in 2015, this 64-meter skyscraper features a high-quality natural stone façade with automatic solar shading and a prestigious tenant base.

Emrah Ercan, an Associate Director Asset Management at PATRIZIA, says the position of the area in the historically significant Degussa site, now transformed into the vibrant MainTor district, adds to its allure. “The MainTor area extends Frankfurt’s famed banking district to the Main riverside turning that into a rich feature of the city lifestyle. MainTor Panorama fits perfectly into the area.”

The building's DGNB Platinum Certification and focus on renewable energy usage underscore PATRIZIA's commitment to environmentally responsible investments. The property's blend of architectural elegance, location and sustainable design makes it a coveted asset in Frankfurt's real estate market.

A unique investment with specialised appeal

The Central Police Headquarters at Adickesallee represents a unique investment. Completed in 2002, this property serves specialised needs with features like a helipad, shooting ranges and a criminal history museum.

Its high-quality clinker brick facade and an expansive lettable area of 88,400 sqm and 905 car space cater to the specific requirements of its single tenant, the Frankfurt SWAT team. The property's long-term lease agreement and full rental indexation make it a secure investment. While its energy certificate may not match other office buildings due to its 24/7 usage, the maintenance and improvement are directly overseen by the tenant, ensuring sustained quality and performance.

Tobias Engelbrecht, an Associate of Asset Management at PATRIZIA, notes the uniqueness of the investment. “Providing the building for the police on a large scale and under these conditions is both a good long-term investment and a service to the people of Frankfurt,” he comments.

Why Frankfurt remains a prime investment location

Frankfurt offers a unique combination of modernity, sustainability and strategic location, making it a magnet for investors. As a recent focus article on Frankfurt by PATRIZIA makes clear, Frankfurt’s position at the crossroads of Europe ensures Frankfurt is firmly positioned among the powerful cities of Europe, while its overall attractiveness rating is #21 from 142 European cities analysed annually by the PATRIZIA City Index.

PATRIZIA's investment strategy, focusing on properties like Gravensteiner Arcaden, Coba Tower, MainTor Panorama, and Adickesallee, showcases a keen understanding of the city's evolving landscape. These investments provide financial returns and contribute to the city's dynamic growth and sustainability.

Frankfurt remains a focus for real estate investment with its robust economy, diverse cultural scene, and strategic importance in the European financial sector. The city offers stability, growth potential and a commitment to sustainable development, aligning perfectly with global investment trends and priorities.