Both domestic and international investors are broadening their horizons and having to work harder to find opportunities in an increasingly competitive German market, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held at MIPIM in Cannes.
‘You have to kiss a lot of frogs to find a good opportunity,’ said Thomas Kaechele, Director: Head of Germany, M&G Real Estate. ‘Investing has become harder in Germany, you really have to know your market and broaden your investment strategy’.
Competition is increasing from domestic as well as international players. ‘The context is much more competitive,’ said Arnaud Malbos, Vice President, Investments Europe, Ivanhoé Cambridge. ‘In some places you can be lucky and have rental growth, but you have to look at value-add, opportunistic strategies’.
Institutions like Union Investment are branching out into the student housing sector and others are actively looking at alternative asset classes.
‘We are widening our investment platform to student housing, all alternative sectors and value-add,’ said Kaechele. ‘We used to buy cheap, work hard, sell for a decent price. Now we buy expensive, work hard to justify the expensive price and then sell for a rather moderate deal. Value-add is the new core because after taking a lot of risk and doing a lot of hard work maybe you get 50-60 basis points more’.
Even cautious Asian investors are taking the plunge, said Christian Kadel, Managing Director, Head of Capital Markets, Colliers International: ‘I have seen an interesting change in their risk profile. Asians who in the past were very conservative have gone up the risk curve, while US investors, who by nature were more on the opportunistic side, have moved to the core sector’.
Some markets have really ‘dried out’, he said, so ‘you need to be much more creative to find sites to develop conversion schemes, from retail to office’.
Development has been made harder by scarcity of land and rising construction costs. ‘On the development side all the low-hanging fruit has been picked, you now you have to work that much harder to find profitable projects, but they do exist and they are worth finding,’ said Melike Wirth, Executive Board Member, Projektentwicklung.
Investors can also find opportunities in less obvious sectors like energy, exploiting the trend for the decentralisation of energy systems and new stricter laws that are being introduced, said Peter Mussaeus, Partner, Energy Law, PwC Legal.
‘It is in the DNA of Germans to regulate everything, but the good news for real estate companies and managers is that is easier to make money with a highly regulated, standardised commodity business,’ he said. ‘Big housing companies already make money by offering their tenants energy supply contracts.’
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