A ‘fantastic’ Q2 after a slow start to the year is leading to expectations that 2018 will be another bumper year for the German real estate market, experts agreed at the PropertyEU Outlook 2H 2018, which was held recently in Linklaters’ Frankfurt offices.
‘Germany is rocketing up,’ said Thomas Beyerle, managing director of Catella Property Valuation. ‘I am more optimistic than I was at the beginning of 2018 and I think that by the end of the year there could be a new record in transaction volumes.’
The year started in the slow lane ‘because people were exhausted from the year-end race and took time to get going again,’ said Carsten Loll, partner, real estate, Linklaters. ‘But there has been a significant pick-up since April and now the market is booming again, so I expect this will be a good year. The future is positive too, as we are past mid-cycle but the end is not near, there are at least two good years left.’
Yield compression is expected to slow down this year and the yield gap of around 200 bps between prime property yields and bond yields ‘remains very supportive and will lead to further inflow into property,’ Beyerle said. Catella’s forecast is that transaction volumes in Germany will reach €55 bn this year.
A wider investor pool
The pool of capital being deployed in Germany is getting deeper and wider, experts agreed. The core investors who have been active for years are being joined by a growing number of foreign institutions and family offices.
‘More and more investors have got to know the German market and found the confidence to invest, and they often have asset managers they trust,’ said Diane Becker, CEO of Catella Property. ‘There are Korean and Chinese institutions looking for opportunities, and Middle Eastern capital is making a comeback. We can find the perfect buyer for almost everything.’
Such a level of interest is driving prices up, especially in the top 5 cities and in the office sector, which is the most sought after due to strong occupier demand which is pushing rents up.
High prices and intense competition are prompting some investors to be more adventurous and go up the risk curve in different ways.
‘There are huge opportunities in project development in the residential area,’ said Michael Bütter, CEO of Corestate Capital Holding. ‘Resi is a cornerstone of the German economy, with a rising demand that is not being met and investors like it because it is a safe haven with attractive yields.’
After the success of micro-living, which has become a recognised investable asset class in the last few years, the next big trend is co-living, he said: ‘It is like student housing with common spaces, a shared lounge, gym facilities and so on, targeted at young professionals who want to save money. It is an attractive proposition for them and for investors too. The urbanisation trend continues, space and funds are limited, so people have to be flexible and creative.’
Beyond the big 5 cities
The search for opportunities and yield is taking investors beyond the traditional comfort zone of the top 5 or 7 cities. ‘A few years ago there was no appetite to buy in Germany’s C or D locations, but now there is a lot of money coming in from Israeli and other funds,’ said Tobias Schultheiß, managing partner at Blackbird Real Estate.
‘Middle Eastern family offices want to park their money here, they know Germany is not just Hamburg or Berlin and they are happy to invest in smaller cities they may not have heard of before, but which they know are growing and have a strong economy and solid prospects.’
Easy financing, a transparent market, an easy exit and the country’s safe-haven status all contribute to foreign investors’ growing interest in Germany across the spectrum, from Frankfurt city centre to secondary cities with a population of less than 100,000. ‘The fact is that Germany is such a deep market that you can find very good product in any asset class and in almost any location,’ said Becker.
Financing a positive
The availability of capital is contributing to the positive investment climate. ‘The financing terms you can get are incredible,’ said Alexander Fischbaum, managing director of AF Advisory. ‘I have been in this business for 20 years and I have never seen such an amount of money available, on an equity basis and a debt basis.'