GERMANY – An increasing number of German institutional investors are broadening their real estate portfolios to include assets beyond domestic core, which many now consider too expensive.

Speaking at Handelsblatt's Immobilienwirtschaft 2013 real estate conference in Hamburg, Frank Pörschke, chief executive at Jones Lang LaSalle Germany, said: "For the last few months, all investors have been fighting over core with very aggressive pricing, and the investment world is revolving around this sector."

Florian Schoeller, chief executive at German rating agency Scope, pointed out that Solvency II had pushed insurers further into core, while Pörschke said he saw "early indications" of growing interest in core-plus and expected the trend to continue.

According to figures from Jones Lang LaSalle, in the first quarter, the share of core real estate in Germany's commercial deal volume was less than 50% compared with almost 70% in 2010.

Core-plus grew the most, from around 5% to 30% over the period. 

Pörschke said: "It can be noted that, with core-plus assets, investors are willing to compromise a little on location but less so on rental contracts."

He added that the delta on B assets in B locations was "significant", and that increased risk appetite was rewarded with a premium "if you have the specialist with the right know-how".

Speaking with IPE at the conference, Stephan Bone-Winkel, chairman at Beos, agreed that German institutional investors were turning increasingly to specialists.

"When we issued our first Spezialfonds, many investors told us they only wanted to invest in German real estate directly," he said.

The Spezialfonds Beos Corporate Real Estate Fund Germany I and II are investing outside core and have attracted major interest from investors. 

"The first is fully invested, and, for the second one, we raised €600m instead of €400m," Bone-Winkel said.

He said he expected the second would be fully invested soon, and cited "many opportunities" in the segment outside core.

He added that investors were rethinking their habit of investing directly into core German property only, and were instead turning to specialists for other exposures.

"We are looking at assets the investors would never have looked at themselves," Bone-Winkel said.

Some new properties from dissolved open-ended real estate funds are set to come to the market, as the two-year deadline for their closure ends this year.

But Friedrich Wilhelm Patt, vice-president of the real estate association Zentraler Immobilienausschuss (ZIA), said he did not think any of the funds currently divesting would reach 100% of the book value of its properties.

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