The German market is becoming a tale of two types of investors rather than a tale of two cities: while the more traditional players opt for core investments in the country’s big cities, the more adventurous are going to smaller centres where others fear to tread.
The German market is becoming a tale of two types of investors rather than a tale of two cities: while the more traditional players opt for core investments in the country’s big cities, the more adventurous are going to smaller centres where others fear to tread.
This two-tier market was highlighted by the experts gathered for the PropertyEU Germany Investment Briefing which was held in London on Tuesday.
‘We call it the Frankfurt to Freiburg effect: demand for core properties outstrips supply so there is a new interest in second-tier locations’, said Thomas Beyerle, managing director and group head of research at Catella. ‘If you are a yield hunter you have to think about going to new locations. Fully let properties in good peripheral locations offer an attractive risk/return profile’.
Foreign investors looking for value, attractive yields and manageable risks are more likely to take the plunge than domestic ones. They are actively looking at offices in cities like Mannheim, Dresden and Heidelberg.
It is not just the office market that is attractive in less well-known locations but residential too, said Rainer Nonnengässer, CEO of Münchmeyer Petersen Capital: ‘Rents in some B and C cities are the same as in the big cities. We focus on these and we see great opportunities.’
Others have a very different view. ‘You have to look at real performance beyond the capital cycle we are going through at the moment,’ said Tony Smedley, head of Continental European investment at Schroders Real Estate. ‘The top 5 cities in Germany are outperforming, they are well ahead of the German domestic market in general, but we are cautious about other cities because of liquidity issues.’ The cautious investor should resist ‘the pressure to make a smaller deal in Freiburg now rather than wait for the big deal in Hamburg’, he said.
His views were shared by Annette Kröger, CEO of Allianz Real Estate Germany: ‘We focus on the top 7 cities,’ she said. ‘We recognise there is a yield play in moving to secondary cities but smaller markets do not make sense for us and we are also worried about liquidity. We have made a strategic decision to stay in liquid markets where it is possibile to exit quickly if you want to.’
There are some markets which investors should enter at their own peril, she warned: ‘I am not sure investors are compensated enough for taking on so much risk.’ According to Andri Eglitis, director of research at Corpus Sireo Real Estate, ‘B and C locations undoubtedly offer opportunities but it is not easy to generate returns’.
While agreeing to differ on this issue, there was consensus among the panellists on how positive investor sentiment is towards the German market. ‘More and more international investors are moving in and competing with us for opportunities,’ said Kröger. ‘I don’t see any areas, however niche, where there is no competition.’
There is no doubt, Eglitis said, ‘that Germany is a safe haven and likely to remain one at least for the next one or two years.’
