‘Germany is a tale of two markets’

Dr. Marcus Cieleback, Chief Economist, PATRIZIA Immobilien AG

Germany is a tale of two markets, with clear differences between residential and commercial and also between primary and secondary markets, delegates heard at Real Asset Media’s Germany Investment Briefing, which was held at MIPIM recently.

‘Two-thirds of commercial transactions take place in the top 7 cities, but then it comes to residential the picture changes dramatically,’ said Marcus Cieleback, Chief Economist, Patrizia Immobilien. ‘Around half of all transactions take place outside the top cities, underlining the importance of Germany’s federal structure’.

What that points to is ‘that there is a market out here and that’s the story not often told,’ he said. ‘There are a lot of opportunities for international investors, provided you have the local knowledge and understand what’s going on’. Until now the residential sector has been dominated  by domestic investors, who account for 67% of transactions compared to 55% in the commercial sector.

Berlin is the big exception to the rule, as there has been a lot of international activity in the residential sector. Because of foreign investors’ continued interest in the German capital, ‘the Berlin market is the most liquid resi market in Europe’, Cieleback said.

So far, however, foreign capital has focused on commercial assets in the big cities. ‘There is a concentration of activity in a few regions and cities and that creates a lot of competition and has a huge impact on prices,’ Cieleback said. ‘The largest share goes to offices and the figures are skewed by the large flagship towers being sold in Frankfurt’.

Foreign investors understand that in Germany there is no Paris or London dominating the country, but that each of the top cities is ‘a little cosmos in itself’, that allows for good diversification, he said. They gravitate to commercial real estate also because ‘there is a lot more transparency on yields, rents and other data’, and less specialised local knowledge is required.

Despite high prices and intense competition, Germany is set to attract more investment because it is neck and neck with the UK as the biggest market in Europe so ‘all investors have to have a view on Germany’, Cieleback said. 

The other positive factor is that the looming threat of interest rate rises has now effectively  been removed by the European Central Bank, so the market can get on with deal-making  without having to worry about what impact higher interest rates would have on the real estate sector.  

Contact the editor here.