Demand for Germany real estate is so strong at the moment that even a potential narrowing of the spread with bonds would not have a negative impact, experts agreed at the PropertyEU European Outlook H2 2017, which was held in Hamburg recently.
‘There’s such a long waiting list of investors ready to come in,’ said Martin Schellein, head of investment management Europe at Union Investment Real Estate. ‘So much capital has already been allocated to real estate that even if interest rates moved up over the next one or two years, it would not make a difference. The wall of money is so high that it would take a very long time to spend it all.’
Spreads are high at the moment, thanks to the European Central Bank, but ‘even an increase in interest rates would not affect the real estate market', said Alexander Eggert, managing director of Warburg-HIH Invest Real Estate. ‘It will remain a good place to invest.’
Germany has become more international in terms of sources of capital and that trend is expected to continue, with money coming from different countries, from South Korea to South Africa, from the US to the Middle East and from other European countries as well. ‘One recent trend is a lot of French capital coming into Germany,’ said Didier Unglik, president of L’Etoile Properties.
Intense competition
The flip side of such interest is intense competition for assets and lack of product. ‘There is interest from all over the world but there is more capital than could ever be spent and not enough product,’ said Sascha Wilhelm, CEO of Corestate Capital.
Many core investors, like Union, now do forward funding of projects. ‘Even for the risk-averse, forward funding development is the only way to come by decent product,’ said Schellein. ‘We also do forward funding just to secure good locations,’ said Eggert.
‘What we are seeing in Germany is real scarcity in the availability of office space,’ said Schellein. ‘If you have a desirable property in a central area of Munich or Berlin you are in a strong position. Landlords call the shots: they have long waiting lists and are refusing tenants. We have never seen such a situation before.’
The fundamentals are positive and supporting rental growth, which is expected to continue. ‘We are seeing rental growth in Germany and there is room for further growth, so the cash flow side is becoming increasingly important,’ said Schellein. ‘I would guess that many investors will speculate on the rental cycle continuing beyond the capital markets cycle.’
German cities will not be the only beneficiaries of Brexit, as Dublin, Paris and Amsterdam are already seeing more interest from banks and companies seeking to relocate out of London.
However, cities like Frankfurt, Munich, Berlin and Hamburg do not need Brexit to attract investor interest, said Wilhelm: ‘Four of the top five cities foreign investors want to put money in are in Germany, while London has seen a steep drop and is now at number 27.’
