‘Cradle to grave’ sectors attracting investors in Germany

Rising rents are luring investors to Germany’s office market, but alternative sectors are also attracting interest, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held in London on Tuesday.

Christiane Conrads, Head of German Real Estate Desk, PwC Legal AG, Markus Beran, Head of Origination International Investors, Berlin Hyp AG, Michael Becken, Managing Director, BECKEN Invest GmbH, Boon Chye Loh, CEO, Singapore Exchange Ltd, Richard Divall, Head of Cross Border Capital Markets, EMEA, Colliers International and Robert Abt, Chief Transaction Officer, Round Hill Capital discuss the current Real Estate Investment Market in Germany. Filmed at the Investment Briefings Germany Briefing in London by Real Asset Media, May 2019.

‘The economy is doing well and demand for offices is very high, which is leading to rent increases,’ said Michael Becken, Managing Director, Becken Invest. ‘Vacancy rates are at 2% and there are shortages everywhere’.

Developers are keen to build more office buildings, but construction costs have been going up, increasing by 35% in the last three to four years. ‘Rents are still going up, which means that the increase in costs is being covered by higher rents, so everything is fine for now,’ he said. ‘The real problem is supply. There is not enough land, so there is a focus on redeveloping existing buildings’.

The flexible, co-working trend has come to Germany and it fits well with the need for the redevelopment and repositioning of existing buildings. 

‘The co-working concept is going to be a big theme in the next few years,’ said Thomas Veith, Partner Real Estate, PricewaterhouseCoopers Germany. ‘There are a lot of assets on the market that can be adapted and recycled for co-working’. 

Residential in all its forms is another big theme in Germany, especially in the top five or seven cities. 

‘Traditional sectors like offices have very low yields, so investors are turning to alternative sectors which provide better returns,’ said Richard Divall, Head of Cross Border Capital Markets, EMEA, Colliers International. ‘These are what I call the cradle to grave sectors, from nurseries and student housing to senior living. Institutions may be overweight in retail or offices, and with the pricing points of Germany I think we’ll see a lot more international capital going into these alternative sectors’.

For large institutional investors offices remain the staple, attracting 80% of the capital, but ‘more and more are interested in investing the remaining 20% in niche sectors, as an add-on to their portfolios,’ said Becken.

Residential is a ‘thriving asset class’, said Robert Abt, Chief Transaction Officer, Round Hill Capital. ‘Now institutional investors are flocking to alternative assets that they would never bought ten years ago’.

The switch to alternatives like co-living has happened largely at the expense of retail, as sentiment has turned against the sector. ‘There is no interest at all in retail,’ said Markus Beran, Head of Origination International Investors, Berlin Hyp. ‘The requests for loans for retail investments have completely dried up’.   

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