Angela Merkel’s success in the German election marks yet another win for EU stability and ever-closer integration.
The result of a CDU victory and a historic fourth term for Chancellor Angela Merkel also means business as usual for the German commercial property market, according to Olivier Vellay, M&G Real Estate’s head of Investment for Continental Europe.
'The German electorate has voted for a continuation of the strong economic performance achieved under Merkel to date, with a record budget surplus, employment growth and tax cuts likely to lead to increased consumer spending,' Vellay said.
German employment growth has outstripped all of the other continental Europe markets with the exception of Luxembourg over the last four years, pushing office take up to record heights and driving strong rental growth. At the same time, the lack in supply of new office developments and the record low vacancy in the big 7 cities is likely to remain unchanged in the medium term, according to research published by M&G.
For investors targeting German real estate, finding value in the market remains the key challenge, the fund manager said. Prime yields across each of the sectors have reached cyclical lows and are generally the keenest in Europe. Ultra-low interest rates look set to continue, as inflationary pressure remains fragile. Despite rising 20bps since June, German 10-year Bunds remained relatively stable at 0.45%.
Whilst further yield compression in Central Business District (CBD) markets is likely to be marginal at best, there is little to suggest low property yields are under threat.
'Non-CBD submarkets may provide the answer for investors in search of attractive pricing, which is where we continue to look for opportunities having deployed almost €300 mln in Germany in 2017 to date,' Vellay noted. 'Our strategy in Germany is to continue to use our strong understanding of local market fundamentals to identify rental growth hotspots, which will be key in driving higher returns across each of the sectors.'
