Colliers' new German head sees wave of resi funds on the cards

Fund managers are looking to ride the wave of interest in the housing market, says Colliers’ newly appointed head of capital markets in Germany Ignaz Trombello.

Trombello, who assumed his new role in January, has been managing partner at Colliers International in Düsseldorf since 1998 and a letting and investment adviser since 1991. In an interview with PropertyEU, he comments on upcoming trends in the German investment market.

PropertyEU:Last year was an exceptional year for the German property sector, particularly for housing properties. How do you expect the market to perform in 2013?
Trombello: Residential assets are still in big demand, and we will definitely continue to see strong activity in this sector in 2013. In total last year there were nearly €26 bn of deals in the country, just in the commercial sector. Adding the residential sector, real estate investment in Germany amounted to about €37 bn last year, which is a tremendous figure. This was the result of a number of large transactions, such as the €1.5 bn LBBW portfolio trade, Deutsche Wohnen’s acquisition of the Baubecon assets and the sale of the federally-owned TLG properties.
Core deals were dominant last year. However, we expect the opportunistic portion to represent a larger share of the market in 2013, as investors move up the risk curve and vendors feel more comfortable about putting distressed properties onto the market. The situation in the core space is expected to calm down, due to declining prime yields and lack of supply. The overall investment figure is, however, expected to remain similar to 2012 levels, as long as financing cost and interest rates remain low - and that is likely to be the case for at least another year.

PropertyEU: Residential is the hottest market at the moment. What is driving activity in this sector?
Trombello: A number of factors contribute to make housing the most sought-after asset today. Institutional investors and pension funds as well as open-ended fund managers already have exposure to the commercial sector, largely offices. They are looking to diversify their portfolios, and the housing market is a liquid sector offering a stable income stream. In addition, residential is a low-risk sector and works well at a time when most investors are cautious. Occupancy risk is limited as a result of the high number of tenants involved, certainly compared to offices. Finally, it is much easier to obtain financing for a residential asset than for a commercial one. Every bank is happy to enter a pitch to finance a residential scheme these days.

PropertyEU: Why are lenders more prepared to provide finance for housing properties?
One good reason is prospects of rental growth, as demand for new homes continues to outpace supply. This is not true everywhere but for selected locations. In cities such as Stuttgart, Frankfurt, Cologne and Dusseldorf there is still room for an increase in prices, while it is different for locations like Munich and Hamburg. In some parts of Berlin there is also scope for tremendous growth. However, investors should remain sensible, especially in the core market, because yields have already reached a very low level and there is a large volume of speculative buildings around these days.

PropertyEU: What are the key trends that you see developing in the market?
I believe we will see a number of new residential funds being launched this year. Union Investment, RREEF and AXA Real Estate have been active in this segment for a while and I have no doubt other fund managers such as Deka for instance will follow suit.
Another trend is the planned redevelopment of outdated, vacant offices into residential schemes. Office buildings which have been vacant for a long time, and where the owner is not prepared to invest, are more likely to come to market for a reasonable price as the occupier sector is expected to remain challenging. Residential developers will no doubt grab the opportunity to get their hands on these assets.