Whether it's office and retail, retail and residential or even 'beds in sheds', mixed-use properties are the future and will deliver the best returns for investors, experts have predicted.
'Mixed-use buildings are the hottest assets on the market, ideally with a Starbucks and shops on the ground floor and offices and residential on top,' Thomas Beyerle, managing director at Catella Property Valuation, told the PropertyEU Outlook 2017: Europe and Germany briefing, which was held in Frankfurt this week. 'In Germany now, office-only buildings tend to get the yellow card from local authorities,' Beyerle said.
The mix can vary, from logistics and offices to logistics and residential or 'beds and sheds', from retail and residential to office and residential.
Another success story that looks set to continue in Germany is the microliving and student housing trend, which caters for university students and young professionals. 'Microliving has tripled in size in 2016,' said Felix Bauer, CEO of Deutsche Real Estate Funds Advisor. 'The transaction volume reached €300 mln last year, while this year they have reached the €1 bn mark. We are witnessing a giant awakening of interest.'
Demand is growing, rents are growing and big domestic and foreign institutions are increasingly looking at the sector, said Bauer: UK and US investors have entered the market, but also German pension funds, as the recent acquisition of a big portfolio from Youniq shows. 'It was a niche market but it now developing into an asset class in itself,' he said.
Beyerle agreed that 'microliving is a money-printing machine now and for the next few years, there is no doubt,' said Beyerle.
Residential in general is in demand in Germany and for this reason rents are expected to increase across the board in the big cities and most university towns. 'In Berlin there are not enough bricks and stones to satisfy everyone's demand,' said Sven Wortberg, partner, capital transactions and real estate practice at King & Spalding.
More niche asset classes are popping up on investors’ radar screens. ‘Sentiment is really positive towards assets like datacentres, which for the last five years did not attract any attention at all,' Beyerle said.
Most investors, however, remain traditional and statistics show that offices and retail are still the most sought-after asset classes, Beyerle said, despite a further decline in office prime yields in all top five German markets to a current average of 3.93%, a decrease of 35 basis points compared to last year.
In the short to medium term prime yields in these markets will decline further but at a slower pace, due to scarce supply and increasing demand shifting towards B-locations.
The problem of the lack of quality office space is not going to be solved anytime soon, Catella predicts, as the development pipeline is unlikely to satisfy rising occupier interest, which means ‘the demand/supply imbalance is expected to continue across most prime locations.'
The distance between the top 5 cities and secondary locations is gradually being reduced as investors looking for more choice of product, lower prices and better yields increasingly look beyond their traditional horizons. But as demand for residential grows, many office buildings may be converted into apartments.
