German resi market to see growth in middle segment - Catella

Germany’s housing market is expected to see growth in the middle segment in the next few years as demand for affordable homes surges, according to senior analysts at Catella Group.

Klaus Franken, CEO of Catella Property Germany, said the focus would move away from large acquisitions at the top end of the market towards affordable housing, where construction has picked up in response to demand.

‘Instead of price hikes in the top segment, the market will focus on newly built "affordable living space" – and this is a good thing,’ he said in comments released ahead of next month’s MIPIM 2015 trade fair.

‘Demand for such housing is virtually unlimited, and there is a lot of catching up to do. This applies to both users and major institutional investors.’

Demand is being fuelled in part by record low interest rates, which are encouraging tenants to take the plunge and invest their savings in property rather than bonds.

Henrik Fillibeck, member of Catella’s management board, said institutional investors were likely to reshuffle their portfolios as a result of rising investment volumes.

Tolerance threshold
‘The tolerance threshold in booming investment markets for accepting further price rises is set to decline further in the coming weeks, thus also increasing the pressure to seek alternative forms of investment in other market segments,’ he said.

‘This market situation will lead to theme-based fund solutions, such as regional funds, while at the same time promoting the restructuring of existing funds.’

Thomas Beyerle, group head of research at Catella Property Valuation, said Germany was on the radar for international investors, whose share of the European real estate market is expected to double in the coming year.

He said: ‘The current situation in the European real estate markets will bring about an almost unprecedented internationalisation drive this year. Especially Continental Europe will benefit from this development.

‘While the 10-year average proportion of international investors in this region is about 15%, we expect this to increase to around 30% in 2015.

‘Although the upswing in the US economy means that US investor activity will tend to stagnate here, we expect the investment drive to come above all from investors based in the UK, Asia and the Middle East. The target countries include Ireland, Spain and Germany.’

Safe haven
Franken said Germany was attractive to international investors because it had proved to be a safe haven in a volatile European landscape.

‘Long-term investment security is given priority over short-lived rental spikes,’he said. ‘New residential space for Germany's middle class is increasingly also pulling in international investors – no haven could be safer.’

Separately, Berlin-based research firm Empirica published figures showing that rent rises slowed last year for the first time since 2011.

Advertised rents for new homes in Germany were up by 2.7% in 2014, compared to 4% a year earlier. Even Munich, the city with the highest rent increase in 2014, saw its growth rate halved from 2013 to 3.2%, while Frankfurt and Düsseldorf saw rental levels fall marginally.

Signs of saturation
‘The tide has turned,’ Empirica’s Harald Simons said at a presentation of the company’s spring report, adding that the market was showing signs of becoming saturated.

At the same time asking prices increased by 6.6%, which combined with low interest rates is an incentive for tenants to switch to owner-occupancy.

‘Construction has picked up in the past two or three years in response to demand,’ Empirica economist Reiner Braun told Bloomberg.

Germany’s Parliament is currently considering proposed new laws which would cap rents for new contracts in existing homes at 10% above the local average in areas where property is in short supply. But Braun said the controls were ‘superfluous’ because rent increases had peaked.