Weak dollar boosts Frankfurt property demand - CBRE

Weak dollar boosts Frankfurt property demand - CBRE

By Peter Starck
FRANKFURT | Fri Nov 9, 2007 9:33 am EST

Nov 9 (Reuters) - The weak dollar is boosting demand for real estate in Frankfurt, Germany's financial capital, as U.S. investors chase less risky assets, property consultancy CB Richard Ellis (CBG.N) said.

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Loan-to-value (LTV) ratios on Frankfurt property deals have fallen to 70-75 percent from 80-85 percent in the first six months of 2007 but there are no other signs of the credit squeeze biting, CBRE executives told reporters late on Thursday.

A lower LTV means that investors are borrowing proportionately less to buy property.

"U.S. investors have considerable amounts of money to invest and a lot of that is flowing into Germany," said Burkhard Plesser, CBRE's head of investment Frankfurt.

"The dollar will fall further and this makes it more attractive to invest in the euro area. There are big shifts from dollars into euros and this demand will also benefit real estate," Plesser said.

"Risk aversion is prompting investors to put more money into property," he said, adding: "The demand is immense."

CBRE estimates that the value of Frankfurt commercial property transactions in 2007 will rise to 6.5 billion euros ($9.6 billion) by the end of the year from 6.1 billion euros so far.

That would translate into a growth rate of 38 percent over 2006 and mark the third consecutive record year of growth.

So far in 2007, more than 100 Frankfurt properties have changed hands, with U.S. investors involved in well above half of those deals, Plesser said.

RISING RENTS

Peak office rents in the city of skyscrapers by the river Main, where the European Central Bank (ECB) and financial powerhouses such as Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE) have their headquarters, look set to rise to more than 40 euros per square metre in 2008, said Carsten Ape, head of office rental markets for CBRE in Frankfurt.

Peak office rents stood at 36 euros per square metre by the end of the third quarter, up from 33.50 euros a year earlier, CBRE said. The vacancy rate fell to 10.4 percent from 11.1 percent in the same period.

"We are counting on prime location rents rising further," Ape said, citing steady demand for inner-city space from the likes of law offices, auditors, consultancies and private equity firms.

"Forty euros (per square metre) is a benchmark, rents will go clearly above 40 euros," he said.

Top Frankfurt shop rents have risen to 450 euros per square metre from 250 euros last year, said Karsten Burbach, CBRE's head of retail Germany.

The most expensive place to rent shop space in Germany is Munich, where prices can reach 1,000 euros per square metre, Burbach said.

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