After overtaking the UK in the property investment stakes last year, Germany is continuing to perform well this year and consolidating its dominant position in Europe, delegates heard at PropertyEU’s Germany Investment Briefing which was held in London on Thursday.
‘Germany’s outperformance continued in Q1 2017, with an increase of 33%,’ said Simon Mallinson, executive managing director of EMEA & APAC at Real Capital Analytics (RCA). ‘There has been a real switch-over with the once-dominant UK. Germany is now the number one market not only for overall transactions but also for cross-border transactions, with a 28% share of the European total compared to just 20% for the UK.’
Good news for Germany is bad news for the UK, the briefing heard. ‘It is highly unlikely that Britain will regain the top spot in the next 12 to 18 months, especially with the uncertainty over the Brexit negotiations ahead,’ Mallinson said.
RCA looked at an 11-year average of transaction volumes in Europe to compare how different countries are doing this year. What emerges from the data is that Germany is performing well above the historical trend, while the UK is not only falling by 43% this year but also performing significantly below the long-term average.
Spain is in third place on a clear upward trend, followed by France which is down on the long-term average. The Netherlands and Italy are slightly up.
Foreign investors compete with domestic capital
Foreign investors are increasingly interested in the German market and now represent 47% of total transactions, competing for deals with domestic investors who account for the remaining 53% and are definitely not in retreat mode. In Q1 this year they increased their investments by 60%.
‘The interest from domestic capital is a massive confidence boost for foreign investors, it is a good signal and a positive story,’ said Mallinson. ‘The data also shows that German investors overseas have been net sellers globally, so it is clear they are repatriating money to invest at home.’
US investors, both private equity companies and institutions, have been the most active, followed by British, French and Swiss investors. Asian players have come to the fore as well, most notably the South Koreans who have closed 20 deals in Germany (compared to 1 in the UK) and who have made Frankfurt their European hub.
The number one target market for foreign investors is Berlin, which alone accounts for over 50% of total cross-border activity, followed by Munich, Hamburg, Cologne and Dusseldorf. The average deal in Berlin is €26 mln, while in Munich, which is more expensive, it is €33 mln. ‘Leipzig, interestingly, despite being a small city, has attracted a lot of investor interest to the point that it has jumped 23 places and overtaken Stuttgart,’ said Mallinson.
International capital tends to focus only on the ‘Big 7’ cities in Germany, with only 30% of overseas money going to B and C destinations, where domestic investors tend to dominate. Despite its recent decline, London is still the top investment destination in Europe, followed by Berlin and then Munich, which has knocked Paris off the podium into 4th place.
