Germany is on course for another record year for investments, driven by the strength of the economy and unprecedented investor interest, experts told PropertyEU’s European Outlook H2 2017 briefing, which was held in Hamburg recently at the offices of Union Investment Real Estate.
‘A new record year is ahead for Germany,’ said Fabian Sperber, associate research at Savills Immobilien. ‘We predict that commercial real estate investment volume will go up to €60 bn in 2017, despite shrinking total returns and declining yields.’
Since overtaking the UK in the investment stakes last year, Germany has been consolidating its position. Uncertainty over Brexit has underlined its safe-haven status, while a strengthening economy is bolstering confidence among domestic as well as foreign players. According to the latest Ifo thinktank report, business confidence reached record highs in June and the mood is described as ‘jubilant’.
‘Brexit has really fuelled the interest in German real estate and made Germany more than ever a safe haven,’ said Sperber. ‘After last year’s investment volume of €54bn, we expect the inflows to continue and reach €60bn in 2017, while the UK will remain stuck at €45bn.’
Investors are prepared to put up with a situation which is far from ideal: an extremely competitive market with high prices and core markets which have reached a plateau, he said. Office yields have been going down, with Munich recording the lowest, and the downward trend will continue for the rest of the year.
Late-cycle stage
‘We are approaching a late-cycle stage, with yields compressing and rents rising, while France and the UK are at an even later stage of the cycle and yields are now stabilising,’ Sperber said. ‘With total returns at just under 4% in Germany, the cash flow element is becoming more important.’
In such an expensive market, with high capital values and low yields, investors are looking for alternative investments. The sector that has recorded the biggest increase in the last five years has been student housing, which has increased 1120% from almost nothing in 2012 to €700 mln in 2016 and is expected to reach €1 bn this year as demand from both domestic and foreign investors continues to grow.
Nursing homes are next on the list, an asset class made relevant by demographic trends and a rapidly ageing population. The increase over the last five years has been 856% to €2.5 bn. Logistics has recorded the third-biggest growth of 133%, reaching record volumes of €5 bn last year, which are set to increase further to over €6 bn by the end of 2017. By contrast, a mature sector like retail has increased only by 43% in the past five years.
