‘We still see a lot of potential in Germany’s top 5 cities,’ said Martin Schellein, head Investment Management Europe, Union Investment Real Estate. ‘Demand is growing and the office market is still undersupplied. Vacancy rates are down and we believe that rents will rise beyond expectations.’
High demand for core office properties and scarcity of existing product is leading to higher rents, declining vacancy rates and an increasing interest in development projects in core locations.
‘No one is building offices, so if you can re-develop existing quality stock in good inner city locations then you will do well,’ said Daniel Werth, managing director, Momeni Investment Management. ‘We may be at the peak of the cycle but I am optimistic, I do not see a slowdown in offices for two or three years at least.’
In the office sector the two trends that will be more visible in 2019 are ‘development in good locations, which is a good choice, and an increasingly important role for the service element of a lease,’ said Markus Beran, head of origination international investors, Berlin Hyp. ‘We will continue to finance central locations with confidence, but we are more cautious on secondary.’
Germany is easily leading Europe. Total real estate investment volumes in the first three quarters of 2018 were €55.8 bn, according to Catella figures, compared to €45.7 bn for the UK and €17.8 bn for France.
‘The market has changed significantly,’ said Karsten Kohlmann, managing partner,Waterway Investments. ‘Five years ago there were three hot contenders for a deal, now we have 15-20 bidders from different countries and backgrounds, from Asian pension funds to US listed companies. We have our political issues, but they pale in comparison to the problems other countries are facing, so Germany is still regarded as a safe haven.’
Commercial real estate transactions in 2018 are likely to be around €59 bn, reaching the highest level since before the financial crisis, and the positive trend is likely to continue into 2019. ‘I am optimistic on next year,’ said Thomas Beyerle, managing director, Catella Property Valuation. ‘There are a lot of properties coming on to the market, especially packaged in portfolios, which means that people end up buying assets they wouldn’t normally choose.’
Prospects are positive but investors must be careful, said Carsten Loll, partner, real estate, Linklaters: ‘I am still optimistic but I see signs of overheating in the market so I would urge caution. For 2019, my forecast is for a scenario similar to this year, with a slow start and then transactions and confidence gradually increasing.’
Panellists agreed that, whatever happens, Brexit will not be a determining factor for the German property market because the growth it has experienced is internally driven and therefore more sustainable.
‘There is a lot of Brexit hype in the investment market but the reality is that the occupier base has not changed a lot,’ said Schellein. ‘What we are seeing in Frankfurt is the end of a long consolidation period and now it’s at a turning-point. It is home-made growth.’
Loll agreed that ‘Brexit will not make a dramatic difference. Frankfurt will never be London, but one day maybe Berlin could be.’
Berlin is just one example of the resurgence of interest in residential investments. ‘Resi volumes are very strong and heading for a new record this year, a trend that will continue into 2019,’ said Beyerle. ‘The housing sector is increasingly on investors’ radar screens, especially developments. Berlin, Hamburg and Frankfurt are some of the most undervalued resi markets in the world.’