It is exactly 10 years ago that PropertyEU launched its first publication at Expo Real in Munich and – not entirely coincidentally – the cover of the October issue is almost identical to the one we published in 2006.
At the time we wrote that real estate investors were looking again at Germany after an extended period of economic contraction and the headline of our cover story read Berlin is Back. In 2006, one of the hottest investment markets was public housing. By then, several international investors such as Fortress, Cerberus, Oaktree Capital Management, Babcock & Brown, Terra Firma, Goldman Sachs and Morgan Stanley had carried out a rash of transactions, spurred by the prospect of stable incomes and rising rents.
Residential was without a doubt the flavour of the month in Germany in October 2006, but there were already signs then that investors were shifting their focus away from big housing portfolios to offices
and retail space. That trend has continued, but now offices are vying for the top spot on investors’ wish lists. According to Philip la Pierre, head of investment management at Union Investment Real Estate,
German offices are ‘a great story now’. Speaking at a recent PropertyEU investment briefing in London, La Pierre said the situation was truly ‘phenomenal’. ‘We are seeing huge demand, real rental growth and fantastic returns, and values will stay high.’
German office sector doesn't need Brexit
So what has happened to turn the German office sector into the new success story in European real estate? The UK’s surprise vote to exit the UK earlier this year has been touted as a possible explanation, but La Pierre believes the German office sector does not even need Brexit and that growth will continue even if banks and financial institutions do not move from London to Frankfurt or Berlin.
Amid the strong demand for German real estate, the total commercial transaction volume in Germany shrunk by 33% to €18.1 bn in H1 2016, according to figures from Catella. But the decline in transactions does not reflect a dwindling of investors’ interest, Thomas Beyerle, managing director, Catella Property Valuation, told an investment briefing held recently by PropertyEU in London. ‘The decline is not due to falling demand but it is purely a result of scarce supply.’
The situation is unlikely to change any time soon, he added. ‘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.’
Low investment volumes reflect lack of supply
Other panellists at the briefing agreed that lower investment volumes do not reflect demand, only lack of supply. 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.’
Indeed, there are signs that investors are shifting their preferences in the wake of the Brexit vote. As Annette Kröger of Allianz Real Estate puts it, Germany’s status as a safe haven has been further highlighted by Brexit and capital from everywhere is now coming into the country. At the same time, residential remains hot albeit that a shift is now discernible towards the micro-living concept which encompasses student housing as well as apartments for young people and senior living. Moreover, Germany’s listed residential sector may not be included in the REIT regime that was introduced in 2007, but its ongoing consolidation is a success story in itself.
Ten years on, there are still plenty of reasons to turn the spotlight again on Germany.
Judi Seebus
Editor in Chief
