The urbanisation trend that is visible across Europe is bringing great benefits to polycentric Germany, delegates heard at the PropertyEU Germany Investment Briefing, which was held at EXPO REAL in October.
‘Unlike the UK or France, Germany has six or seven important cities with strong underlying economies and that is a great advantage in a context of strong urbanisation,’ said Philip LaPierre, head of Continental Europe, LaSalle Investment Management. ‘The downside, if it is a downside, is that Berlin will grow but will never become a London or a Paris. Germany will never have one dominant city.’
International investors have become more familiar with Germany and its federal system, panellists agreed, and continue to invest in the country despite stiff competition and steep pricing.
‘There is a lot of capital out there and finding value has become a real challenge,’ said LaPierre. ‘The German market is tough and highly priced, but it is a very liquid, professional and transparent market and financing is widely available. Investors understand the pros and cons of investing in the country.’
An option for investors who want to avoid the strong competition and high prices of the CBD is to opt for secondary locations, said Nikolai Deus-von Homeyer, managing partner, NAS Invest.
‘We buy in the large cities like Hamburg or Berlin because they are liquid markets and demand is strong, but go for locations and assets that are not attractive for the large institutions,’ he said. ‘We use our knowledge of the dynamics of the local market, and then additional value comes from our asset management expertise.’
Another option for investors is venturing into the myriad of smaller provincial towns in Germany, but very few take that route.
International investors tend to stick to the main cities and do not venture into small secondary towns, said Tobias Schultheiß, managing partner, Blackbird Real Estate: ‘These are less well-known places and not very liquid markets, so there is no foreign capital, yet there is a lot of value to be found and yields that are 8% compared to 3% in the big cities.’
It is a good investment opportunity, provided you choose the cities with good demographics, a strong economy and low unemployment, like Limburg, and that you have local people on the ground who know these places and can advise you, he said.
Across Germany, offices and logistics are the most sought-after sectors, said Marius Schoner, country head Germany, CBRE Global Investors: ‘In offices demand is strong and vacancy rates low so I believe there will be rental growth. Logistics is a very healthy market, with increasing demand from both investors and occupiers.’
Retail ‘is a different story,’ he said. ‘Rents are under pressure and the threat of e-commerce is keenly felt. An equilibrium must be found between shopping centres and e-commerce.’
‘Looking ahead, there is a solid growth scenario for the German office market,’ said LaPierre. ‘Retail faces a cliff-edge scenario, while logistics has a good supply/demand balance. ‘ Investors’ focus is shifting to income stream and there is a lot of capital being raised for value add, he said.
‘Inbound investment into Germany is very strong, especially from Asia,’ said Ilka Garmhausen, partner and co-head of real estate, RSM. ‘But from a tax perspective things are getting harder for foreign investors and there is a small window before the end of the year. Tax changes could have an impact on investor behaviour.’
The proposed tax changes affect the sale of companies owning German real estate directly or indirectly and they are likely to increase the tax cost of investing in the sector. In particular, changes to German real estate transfer tax (Rett) will make it harder to sell without triggering Rett.
Investors who are aware of the risks take precautions, said Deus-von Homeyer: ‘We structure our investments via Luxembourg because we have many European investors, and because we don’t want to be exposed to German tax changes.’
