Transaction volumes in the property sector are expected to reach €60 bn in Germany this year, setting a new record and possibly overtaking the UK again, delegates heard at the PropertyEU Germany Investment briefing.
The €60 bn figure, according to Savills research, reflects the growing interest from global investors. 'We are seeing strong inflows from the US, Europe and Asia, due to a mix of old and new factors,’ said Marcus Lemli, CEO of Savills Germany and head of investment Europe.
‘The strong economy and the safe haven aspect are appreciated by investors, but also the liquidity of the market. Now rental growth has been added to an already positive picture.’ Lemli was speaking at the Germany Investment Briefing held in London last week.
Office rents have been flat for the last ten years, but continued tenant demand and limited supply are now driving rental growth. ‘If I had to choose one single sector to invest in, it would be office developments,’ said Lemli.
‘There is a lack of development in the office sector and top rents are increasing,’ agreed Nikolai Deus-von Homeyer, managing partner, NAS Invest. ‘We have been switching from residential to offices recently, because we see more potential in this sector.’
Investors do not seem to be deterred by the high prices that core properties can now command. ‘Pricing is at record levels, €13,000 m2 in prime markets,’ said Lemli. ‘We are at the peak of the cycle and that is what makes the real estate sector so interesting now. Investors are balancing the risk of missing out and not buying with the risk that prices may turn.’
There is so much capital chasing deals that inevitably ‘there are a lot of careless investments, made without a plan or a clear strategy,’ said Carsten Loll, partner, real estate at Linklaters Germany. ‘We in the real estate industry have to be a lot smarter to overcome the challenges we are facing.’
One of the challenges is meeting tenants’ new demands. ‘We need to switch to being service providers, not just owners collecting rent,’ said Markus Beran, head of origination international investors, Berlin Hyp. ‘We must start thinking of our tenants as guests or customers, not just occupiers, and bring in a more service-oriented attitude.’
The presence of both domestic and international investors targeting the same market is making competition more intense, but also bringing in new ideas and positive change in the sector.
Another positive aspect of the current market, said Lemli, is ‘the almost perfect balance between the two. In the past we have seen phases of 70% international capital, moving in and then out. Now the 50/50 split is healthy and sustainable.
International capital is taking macro bets and going for the big assets, while domestic investors who know their environment well might take a strong bet on a particular sector. It creates a very good balance in the market.’
The German market offers different paths to different investors, he said: ‘Whether it is core assets and core risk or value-add looking for opportunities, they are both good strategies and they are both being carried out successfully in Germany at the moment.’
