GERMANY – Institutional investors should get out of the low-yielding residential property segment for their own good, according to Johannes Meran of real estate company conwert.
"The typical German insurer or pension fund is very risk averse and wants to buy top locations, but sometimes at unrealistically high yields," he told IP Real Estate.
As an example, he mentioned the enormous interest by institutions to be involved in the takeover of the large GBW core residential portfolio by Patrizia.
Meran's assessment correlates with findings in a recent Union Investment survey of real estate companies and their purchase preferences, which naturally mirror those of their clients.
He said yields had already dropped so low – particularly in cities such as Vienna, Munich and parts of Berlin – that investments did not "pay off".
"That," he added, "is mostly not enough for insurers or pension funds."
Meran said he was convinced institutions went into residential property "too late" in the wake of the crisis.
"They should have done so straight in 2008 or 2009, but nobody dared to do that then," he said.
Meran said yields were generally too low for investors with a minimum-return guarantee, and that he did not see any change to their risk-averse position any time soon.
Conwert itself has recently bought a major portfolio of flats in Germany consisting of more than 4,000 units in the core markets of Berlin, Leipzig and North Rhine-Westphalia from GE Capital Real Estate Deutschland, a division of the US conglomerate General Electric.
Meran, who will retire as chief executive of conwert in October, said his company had signed similar deals in recent years that had a "slightly higher need for investment and higher vacancy rates, and are more labour-intensive than other portfolios".
