GERMANY - Investors' continued appetite for new-build prime is "completely out of sync" with Germany's real estate stock, according to a report published today by IVG.
Instead, they should be looking at refurbishment projects that could be worth €244bn over the next five years.

High-profile conversion projects currently account for 1.5% of the German real estate inventory. The 'Research Lab' report said: "The big picture, meaning the remaining 99%, is often overlooked."

Construction booms in the 1970s and 1990s have left assets that have "reached the peak in their life cycle from a real estate, technological and commercial standpoint".
Of the total, public buildings will account for €204bn in refurbishment costs, and 'corporate space' €40bn, including €23bn in office.

By far the highest bill will go to public bodies, with German state governments facing a bill of €27bn and the federal government, €41bn for building and infrastructure refurbishment.

Not least because of deterioration caused by past neglect, the "ultimate cost may be far higher", according to the report.

It said: "Neglecting refurbishment work will mean higher and higher costs to bring the infrastructure up to standard, buildings for which substitutes can be found will be vacant and ultimately abandoned."

The report's authors suggest regional authorities launch public-private partnership projects to encourage investment in existing structures.

But it warns that the projects' success will depend on whether they can create appealing projects without investors losing sight of their official duties.

In the meantime, although obstacles to refurbishment include the fact that many of the assets are still in use and some of them are on long leases, investor demand for high-grade secondary will allow investors to reposition it with a "moderate amount" of refurbishment.