GERMANY - Real estate investors expect Germany to be the best performing European real estate market in 2008, according to a survey by Ernst & Young Real Estate.
The study reveals 70% of investors believe Germany will continue to offer "an attractive investment environment" compared to 2007, while 90% think it will remain attractive when compared to other European markets.
One hundred companies were surveyed for Ernst & Young Real Estate's Trend Barometer study, including banks, insurance companies, open and closed-end funds, private equity funds, housing companies and real estate stock corporations.
All companies surveyed expected small and medium-sized transactions to make up a larger part of market volumes in the future, with portfolio transactions exceeding €500m becoming increasingly seldom.
"In view of the crisis on the financial markets and the fact that financing large real estate transactions has become more difficult, we expect investment volumes to drop by between 15% and 20% compared with 2007," said Hartmut Fründ, managing partner at Ernst & Young Real Estate.
"However, at €60bn - including residential and NPL transactions - volume will still remain high," he added.
Andreas Quint, managing partner at rival firm Catella Property Group, confirmed only smaller and medium-sized transactions are possible in today's market environment.
Despite this, Quint believes investors have a positive outlook on the German market. "The fundamentals are the best in Europe for a market of its size," he said.
"Most of the negative sentiment comes out of the banks who are dealing day-to-day with credit problems, but they are not investors or owners".
Christian Schulz-Wulkow, partner at Ernst & Young Real Estate believes lower purchase prices in the market, an increase in initial rates of return and fewer competitors will benefit investors who do not have to rely on high levels of debt.
Around 77% of survey participants anticipate opportunity funds and private equity funds to enter into fewer purchase transactions going forward, while around two-thirds expect open-end real estate funds to grow in significance as a buyer group.
"Investors with a strong equity base have a clear advantage in the current market environment," said Shulz-Wulkow.
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