The lure of niche sectors for real estate investors in the search for yield must not distract from core sectors like offices, as in Germany vacancy rates are near all-time lows because of years of little or no development activity. The opportunities and possible pitfalls of traditional investments were discussed at the PropertyEU European Outlook Investment Briefing, which was held in Hamburg this week.
'The majority of developers in Germany have concentrated on residential, so office development has lagged behind,' said Philip la Pierre, head of investment management Europe, Union Investment Real Estate. 'Vacancy rates are now under 5%, which is very low, there is very little supply so rental growth seems to be on the cards.'
While agreeing with la Pierre that the German office market is 'very attractive and solid', panellists pointed out some downsides and some worrying trends which investors must take into consideration.
Obsolescence and re-investment are factors to keep in mind, said Alexander Fischbaum, managing director of AF Advisory: ‘You will have to invest in order to make it a lettable product, but if you start by paying a high price then it becomes an expensive proposition.'
One trend that is changing the office landscape is sustainability and 'healthy' buildings. At the moment, said la Pierre, 'it applies to core assets, contract tenants with a global reach and an awareness of environmental issues, but not to price-sensitive assets.'
However, there is an unstoppable shift in tenants’ demands towards offices of a very high standard that have good ventilation, natural light, exercise and rest areas and so on, and companies will have to provide all that to their employees if they want to retain talent in an increasingly competitive market. Google and other tech companies have shown the way, and others need to follow.
'In time sustainability will become ingrained and necessary,' said la Pierre. 'The question is who will pay for it?' Will it be the landlord, saddled with an extra expense, or the tenant through rental growth?
Thomas Beyerle, managing director of Catella Property Valuation, said that 'the harsh truth is that in Germany today no one wants to pay for sustainability. We all failed by counting the green premium, but it has been ten years and it is still not measurable. It is still limited to a small avant-garde but there hasn’t been the big roll-out that we expected.'
For Sascha Wilhelm, CEO of Corestate Capital Holding, 'the big worry for us is the unpredictability of what will happen to office spaces, from a health and sustainability point of view but also from a technology point of view, as the IT landscape is changing so fast.'
'Germany is very mature on the investment cycle,' said la Pierre. 'I would concentrate on income, because the yield cycle will come to an end across all asset classes.'
Nicol Dynes
Investment Briefings and UK Correspondent PropertyEU
