Germany Outlook Briefing: Investors move to periphery in hunt for product

Property investors are moving to the periphery both in terms of sector and country as prime product in the core markets of Germany and France dries up, attendees at PropertyEU’s recent Outlook Briefing in Frankfurt heard.

Reviewing the investment situation in Germany in a keynote presentation during the briefing which was held at end-November, Vanessa Muscara, senior research analyst at M&G Real Estate, said that real estate transaction volumes fell to €6 bn in Q2 from €9.4 bn in Q1.

This decline, she said, was not so much due to lack of investor demand as to lack of product. ‘Had there been more prime product, volumes would have been higher,’ she noted. Due to scarcity of product, investors are having to move up the risk spectrum and are seeking product in secondary cities in core countries followed by product in the recovering peripheral markets of Spain, Portugal, Italy, and Ireland. ‘This is happening at the expense of core markets like Germany and France,’ she said.

Although volumes in Germany picked up to reach €7.8 bn in Q3, the overall trend since the beginning of the year has been downward. DTZ data shows that Germany and France have seen their share of property investment shrink over the course of 2014 from 63% in Q1 to 50% in Q3 at the expense of peripheral markets.

Klaus Franken, CEO of Catella Property in Germany, noted that the market was not only feeling the squeeze on the supply side. ‘There is pressure on the buyer side but also pressure on the seller side,’ he said. ‘I got a call from a property owner recently who said he didn’t want to sell right now because he had got a fantastic financing arrangement from the bank and there was therefore no need to sell.’

Many sellers are faced with the same problem as core investors, he added. ‘What should they do with the proceeds from the sale? They get the purchase price and then want to reinvest that money but there is no product. So you get a sort of “blocking” in the market. For next year, I see this situation continuing in Germany.’

Click here to read the full report from the Germany Outlook Briefing or go to our investment briefing page for the presentation and videos from the event.