Why German real estate market could shrink after 50% jumps
NEW YORK: According to industry experts, the German investment market for commercial real estate is heading for its best year since at least 2007.
In the next 12 months, however, the transaction volume could fall slightly. On the one hand, the market is bought empty, and on the other hand, the price level that has now been reached makes it less likely that further value gains will be achieved by yield hunters.
“The market is not being thwarted by a lack of capital but by a lack of attractive offers, especially in the office segment, where there is a significant shortage,” says Matthias Leube, CEO of real estate service company Colliers International Deutschland GmbH.
According to Savills Immobilien Beratungs-GmbH, prices have risen so much this year that owners have become increasingly willing to sell their properties and take profits. At the same time, risk-averse investors continued to go shopping. As a result, the company now expects a record transaction volume of almost € 60bil (US$70.4bil) for 2017 € and about 50bil (US$58.7bil) for 2018.
“Much will depend on selling propensity next year as demand remains higher than supply. If it increases, it could be 60 billion euros. If it sinks as more and more owners become long-term owners, it might only be € 40bil,” says Matthias Pink, head of research Germany at Savills.
The estimates of other market observers are similar. Colliers sees over € 55bil in 2017 and a little less in 2018 if industry trends persist. BNP Paribas Real Estate forecasts 58 billion euros for 2017, the highest since 2007, and a volume “well beyond € 50bil” for 2018.
According to VDP-Research, the market researcher of the German Pfandbrief banks, in the third quarter alone prices for office real estate increased by 9.5% compared to the same quarter of the previous year, while low interest rates, tight supply and strong economic growth persisted.
An example of the fast pace in the real estate market is the Tower 185 in Frankfurt, whose sale for € 775mil was recently sealed. The skyscraper gained about 50% in value within four years. “Such a strong growth is not an isolated case,” says Franz Eilers, head of real estate at VDP-Research.
In a ranking of the largest transactions of the year in the German investment market for commercial real estate, which BNP Paribas Real Estate has created for Bloomberg, the Tower 185 occupies the third place.
The list is led by a transaction in which RFR Holding GmbH sold a package of 5 properties to Signa Prime Selection AG for € 1.5bil.
Two developments could affect the German market as a whole in the coming year: the involvement of foreign investors and the impact of Brexit, observers said.
“Especially Japanese investors are looking for the first time more extensively at Germany, after they focused more on the United Kingdom and the United States in the past,” says Leube. “And Frankfurt already has a first Brexit effect.”
This is also confirmed by colleague Oliver Barth, managing director of BNP Paribas Real Estate GmbH. How big the influence of Brexit on Frankfurt will be, can not be foreseen yet, he says.
But: “If all the companies that are currently seeking space and all the Brexit banks were to sign leases at the same time, there could in theory be a shortage of space in the city centre of Frankfurt”.