Cityhold Property, the wholly owned subsidiary of Sweden’s AP Funds 1 and 2, has acquired its first property in Germany, a centrally located freehold office building in Munich providing 15,000sqm of space.

The property was purchased for an undisclosed sum from a special real estate fund of IVG Institutional Funds.

Cityhold was set up in 2011 specifically to invest in core European office buildings worth about €50m and above, to add diversification to its parents’ real estate allocation, now worth £40bn (€48bn) in total.

Having invested half its current allocation of €1.2bn in three London properties in 2012, Cityhold is now looking to diversify geographically by using the other €600m to buy buildings in Munich, Hamburg and Paris.

There will be a greater number of properties than in the UK segment because lot sizes are smaller.

Per Sjoberg, chief executive at Cityhold Property, said there was no timetable for the acquisition programme because they were looking for the right opportunities and strategies.

“We are looking primarily for offices in markets that are transparent and liquid, with modern buildings in good locations with good transportation links,” he said. “And we are looking for high-calibre tenants.”

The Munich office is located at Nymphenburger Strasse 3, 80335 and is multi-let to a diverse mix of strong covenant tenants.

Completed in 2003, the property provides an average unexpired term certain of around seven years.

Cityhold is looking to get a running yield from the property approaching 5% a year, the average target for the whole fund.

“Munich – and Germany as a whole – is a very stable and low-risk real estate investment because of the low volatility, which fits in perfectly with our investment criteria,” Sjoberg said.

“Moreover, finance costs in Germany are much lower than elsewhere – for example, the UK.”

He said an additional attraction was the stability of the German economy generally and its lower levels of debt.

Cityhold’s owners are providing full equity funding for the acquisition.

Jones Lang LaSalle acted as Cityhold’s real estate adviser, with legal advice from Mannheimer Swartling.

The vendors were represented by Colliers for the sales process and GSK Stockmann as legal adviser.

The deal is expected to complete in February.