Prices have fallen by between 5%-10% for prime assets in France and Germany due to the effects of the coronavirus pandemic, according to experienced transaction managers.
In an interview with PropertyEU, Jérémy Convert, executive director of investments based in Paris at AEW, said: ‘What we hear is that there will be a minor repricing of core real estate. We have issued some expressions of interest during the lockdown in Paris on core assets with minor repricing compared to what we could have offered before. At the moment what we are seeing is between 5% and 10%.’
Convert added that for less core properties, ‘there is no real market at this stage because it is difficult to figure out what the level of rent and yields on value-add assets will be. The value-add players are more in “wait-and-see” mode and the owners are mostly not forced to sell yet.’
His colleague, Marc Langenbach, head of funds & separate accounts in Germany, said buyers in the country ‘also want a small discount, up to 5% depending on the asset class.’
The manager is currently in a structured process with interested parties over the sale of the assets in its AEW City Office Germany Fund. Although the vendor has not said what price it is seeking, the package of office buildings spread across seven German cities is believed to have gone on the market in Q1 2020 for about €480 mln, with Colliers International advising AEW.
Langenbach said that the market in Germany had become more active again in the last few weeks. ‘We can see that investors are coming back - and they really want to invest. So I would say that the market is up and running again and that at least half the investors are back.’
AEW has had some international buyer interest as well as domestic in the office portfolio. But while travelling within Germany is possible, ‘definitely, travelling across border has become a big problem,’ he confirmed.
It is thought that international investors which express interest in assets are including caveats in their indicative offers, including the need to see the real estate. ‘That means longer exclusivity periods,’ he said.
Sellers generally therefore have to decide whether to engage with cross-border investors, and few seem likely to do so without the prospect of a premium price over a firm offer from a local buyer.
Preference for off-market opportunities
Both AEW executives said investors’ current preference is for off-market sales opportunities. ‘Investors are less keen on structured bidding processes as pre-Covid,’ Langenbach observed. ‘They say, okay, if I allocate my time here I want to have a good chance of getting a result, especially with the time and travel constraints. We understand that.’
In France, Convert’s team recently made the first investment on behalf of new mandate Rheinische Versorgungskassen (RVK). The acquisition of a 3,470 m2 office and retail building on Rue de Prony in Paris closed in the midst of the French lockdown.
Since the crisis began, the French transaction team has focused on core property for clients and they have also made several offers on developments. ‘We do not have to visit these assets and working with our advisers we can start the due dilligence,’ Convert said. ‘One offer we made is on a retail property which we will visit as soon as we can, but it is quite a simple one and we are not expecting any surprises.’
Langenbach also expects to see development opportunities: ‘A lot of developers have problems finding finance so I think some attractive opportunities will come up for us.’
Returning to office-working
The French team is based in Paris and they have all been working from home during the lockdown, but AEW plans to begin gradually opening the office this week following the French government’s lifting of some restrictions on 11 May.
‘The plan is to gradually welcome the teams in the coming weeks but we are not going to be 100% on site in the week of 11 May,’ Convert said.
He hopes it will be possible to soon begin visiting some assets, ‘being careful and using all the tools that we have such as masks and social distancing'.
In Germany, office working is slightly more advanced. AEW’s head office in Dusseldorf re-opened about three weeks ago.
Langenbach explained: ‘Our Dusseldorf and Frankfurt offices are now operational on a rotational system and socially distancing.’