German investment volume seen rising to EUR 16-18 bn in 2010

A vast majority of investors and companies believe the German real estate investment market will remain attractive in 2010, with the number of people sharing this view rising to 80% from 66% last year. This is one of the key findings of Ernst & Young Real Estate’s annual trend survey of some 100 companies and investors. However, over 80% of those surveyed believe the crisis has yet to bottom out in terms of demand for space, rents and payment behavior.

A transaction volume of approximately EUR 16 bn to EUR 18 bn is expected for commercial and residential properties this year. ' Although the transaction volume is set to increase for the first time since the beginning of the crisis, major commercial portfolio transactions and distressed sales are currently not anticipated,' said Hartmut Fründ, Managing Partner of Ernst & Young Real Estate GmbH. 'The market is still going through a period of consolidation.'

'Although borrowing volumes are up, property owners are being confronted with rising vacancy rates and falling rents,' said Christian Schulz-Wulkow, Partner of Ernst & Young Real Estate. In terms of segment, residential is popular: 'Residential property entails less risk and it has become a considerably more attractive proposition for institutional investors,' added Schulz-Wulkow.

Survey participants included banks, closed-end real estate funds, real estate stock corporations/REITs, institutional investors, investment companies, opportunity/private equity funds, insurance companies and residential real estate companies.

The importance of IPOs as an exit option is picking up again in 2010, the survey found. Following a significant decline in 2009 (5%), 13% of survey participants are now considering going public. Special funds will also play a major role as an exit option again in 2010. A narrow majority doubts that commercial portfolio transactions will return in 2010. 'We expect to see an increase in major commercial portfolio transactions in the second half of 2010 at the earliest, although probably not until 2011,' added Fründ.

The vast majority of survey participants believe that family offices and institutional investors, most notably insurance companies, special funds and open-ended funds, will continue to be key buyer groups in 2010. Compared with the previous year, only a minority of investors surveyed think it likely that sovereign wealth funds and banks will emerge as active buyers. Opportunity and private equity funds, real estate stock corporations and international funds are seen as the biggest seller groups in 2010. Non-property companies and the public sector will make occasional sales only.