An increasingly competitive market, a slowing economy and looming tax changes are not deterring foreign investors from investing in German real estate, delegates heard at Real Asset Media’s Germany Investment Briefing which took place at MIPIM in Cannes.
‘We are as prudent as our parent company’s name suggests, but we believe Germany is and will remain a stable market and one of the most important in the world for us,’ said Thomas Kaechele, Director: Head of Germany, M&G Real Estate, which is owned by Prudential. ‘I don’t think there will be big changes to the German market whatever happens to interest rates or to the economy’.
There is some concern over political developments looking ahead to elections in 2021, said Arnaud Malbos, Vice President, Investments Europe, Ivanhoé Cambridge: ‘We do think about the post-Merkel era and what the new government will be like, because we need strong governance’.
However, the plan for the Canadian company is to stay the course: they are setting up a team in Germany and plan to increase the current €500m exposure to the German market as part of a further push into Europe. ‘We plan to double the size of our allocation to Europe from €5 bn to €10 bn in the next few years’, Malbos said.
Foreign investors have a very positive view of the occupational market in Germany and they also use currency hedging to increase their yields, said Christian Kadel, Managing Director, Head of Capital Markets, Colliers International.
‘Offices are everybody’s darling, they see the most transaction volume,’ he said. ‘We now have the lowest vacancy rates we’ve had for 20 years, so rents are picking up. It makes a lot of sense to invest in this sector’.
Last year international capital accounted for around 40% of transactions, a decline from the year before, but foreign investors still account for the big-ticket deals over €200-300 mln.
There is a wide range of investors, with the €60 bn market divided between evenly between domestic investors (€15 bn) and EMEA (€15 bn) and others playing a smaller role. The US is at €5 bn and APEC at €4 bn but growing, according to Colliers International figures.
The UK’s decision to leave the European Union is bringing benefits to Germany, said Christiane Conrads, Head of German Real Estate Desk, PwC Legal: ‘From where I sit in London I see a Brexit dividend for Germany. Interest in Frankfurt has increased, but maybe not as much as people expected a couple of years ago when the referendum was held. And Berlin continues to attract strong interest, particularly from Asian investors’.
In the next few months tax legislation is set to change, Conrads said: ‘We are expecting two major changes to German tax laws. One is to the real estate transfer tax regime for share deals, the thresholds will be changed and the whole system tightened. The other is new rules on property tax, which will change the way real estate is being valued in line with the Constitutional Court’s ruling last year’.
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