Investors need to have a clear strategy and choose their sectors well in order to be successful in the increasingly competitive German market, experts agreed at the PropertyEU European Outlook Investment Briefing held in Hamburg.
‘You have to be nimble and adapt to changing market conditions,' Sascha Wilhelm, CEO of Corestate Capital Holding, told the briefing held at the offices of Union Investment Real Estate in Hamburg. 'We have been selling residential because markets were peaking and prices were high and we have created two new business lines, with a focus on niche sectors like microliving and student housing. We believe niches are still priced at reasonable levels and the risk adjusted returns are ok.'
Corestate's choice is not a sudden shift in strategy but the confirmation of a choice made some time ago, he explained: ‘We were early movers in student housing six years ago, when there was no affordable modern housing for students at all. We believe that in order to stay competitive, Europe must focus on the quality of its education, maybe with less but better universities to rank among the best in the world.'
Corestate's strategy is to focus on the top university towns and concentrate investments there, in the belief that they will attract increasing number of international students, who will all need accommodation and who will demand high standards. 'The shortage of student accommodation is already growing,’ said Wilhelm. ‘I would say it is a niche sector that is closer to hotels than to traditional residential.'
The two are not mutually exclusive, pointed out Thomas Beyerle, managing director of Catella Property Valuation: 'Niche sectors like student housing show the market works, which is good, - he said. – However, we still love traditional residential and believe there is enormous room for improvement. Residential will remain the booming sector.' Germans on average pay 37% of their salary on rent, while the European average is between 45% to 62%, Beyerle said, which means that 'housing is going to be the main trigger for yields in the next few years. It is a fact that people will inevitably have to pay higher rents, whether they like it or not. It is a simple business case.'
As for retail, Wilhelm believes it has a bright future in secondary cities: ‘We strongly believe in the retail story in Germany and we see many opportunities. We have built an €800m portfolio in retail in secondary cities, and institutional money is now buying into this idea for the simple reason that they have better indices, as they collect the purchasing power of a whole area.'Lubeck and Freiburg are examples.
All over Germany, said Philip La Pierre of Union Investment, the development pipeline for shopping centres 'has never been this low' but the retail sector is 'stable but not in the same growth scenario as in the past', as people will have to pay more for their housing and will have therefore have less to spend in shops.
