Figures do not tell the true story in Germany, as investment volumes are down yet there has never been such high demand or such levels of capital chasing opportunities in the real estate sector, PropertyEU's first post-summer investment briefing has heard.
The decline in transactions does not reflect a dwindling of investors’ interest, experts agreed at the PropertyEU Germany Investment Briefing, which was held in London on Tuesday at the City headquarters of TH Real Estate.
'The decline is not due to falling demand but it is purely a result of scarce supply,' said Thomas Beyerle, managing director, Catella Property Valuation. The total commercial transaction volume in Germany shrunk by 33% to €18.1 bn in the first six months of 2016, according to Catella figures.
'We are seeing increased capital from everywhere coming into Germany, as its status as a safe-haven has been further highlighted by Brexit,' said Annette Kroger, CEO of Allianz Real Estate Germany. 'Lower investment volumes clearly do not reflect demand but only the lack of supply.'
High transaction volumes are usually a reflection of investors' differing views of the market, with some willing to sell and others happy to buy. In the case of Germany at the moment 'everyone has the same view and everyone wants to hold,' said Michael Walton, CEO of Rynda Property Investors. 'There is too much demand and an absence of sellers, as a result there are few transactions and a lot of unsatisfied capital.'
The situation is unlikely to change any time soon, said Beyerle: 'We expect the demand/supply imbalance to continue, as international investors, especially from Asia and the US, will increase cross-border activity. The German real estate sector will benefit from a positive economic environment and historically low interest rates.'
Even the elections next year are not causing much concern, experts agreed, as everyone expects another stable coalition and no dramatic change in German politics. Cross-border investments in Germany’s top five markets (Berlin, Frankfurt, Hamburg, Munich and Dusseldorf) decreased to €3.4 bn, as investors were forced by lack of supply to turn to secondary cities.
'There is a lot of interest in secondary and even tertiary cities in Germany,' said Walton. 'You need local knowledge and speed of execution to beat the competition, which is intense. A lot of deals happen below the radar.'
Competition is strong and intensifying because investors in the search for yield are re-allocating capital from other asset classes, said Douglas Edwards, head of institutional business international at KGAL Capital. 'Many international investors are putting money in secondary cities like Mannheim, which are regarded as less dynamic but more sustainable. In the market there is a lot of activity under the radar, which is not reflected in the official figures.'
Europe's safe-haven continues to be a magnet for foreign investors but finding opportunities is becoming more difficult. As a result, 'investors are moving up the risk curve and will continue to do so,' said Beyerle.
In such a challenging environment, having people on the ground is more crucial than ever, said Walton: 'In Germany investment activity is spread across different states and different cities, and a lot of deals are done off market, so insider knowledge is essential.'
