Approximately 43,800 apartments changed hands during H1 2019, which is around 46% less than in the corresponding period last year. This decline is partly attributable to the large volume Buwog acquisition in March 2018. A total of 165 transactions (for at least 50 apartments) were completed, which is 18% less than in the first half of 2018.
This takes the total for the last 12 months to 238 sales, which is the lowest figure since September 2013. The average transaction over the last twelve months comprised 399 apartments, which is the third lowest figure in the current market cycle.
Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, explains:
“The decline in transaction volume is not a sign of lower demand but rather a consequence of the limited supply of larger portfolios,” says adding: “Many investors even want to further increase allocations to residential property within their portfolios. However, since larger portfolios are scarce, they either have to acquire medium-sized residential portfolios or development projects.”
Within the regions, investment activity in North Rhine-Westphalia and Schleswig-Holstein were the standouts in H1, accounting for 22% and almost 13% of all apartments transacted, respectively. This compares with five-year averages of around 20% and 8% respectively. Berlin was once again leading among the federal states during the first half of the year with around 10,300 apartments (25% of all apartments transacted).
The institutional residential investment market remained strongly focused on the seven A-cities – Berlin, Cologne, Duesseldorf, Frankfurt, Hamburg, Munich and Stuttgart –which have been responsible for around 52% of investment, or approximately €3.2bn, since the beginning of the year. With a transaction volume of more than €1.8bn, around 30% of the overall volume, Berlin was also by far the most sought-after location for residential investment.
Matti Schenk, Senior Consultant Research Germany for Savills, explains:
“The high level of economic momentum and continued attractiveness of the capital are likely to ensure that the apartment market remains strained going forward. This is all the more likely in view of the continued low levels of new-build activity. As a result, investors have priced further rental growth potential into their investments.
“However, with the rental cap on the table, the leveraging of this potential is likely to be significantly restricted regardless of the issue of constitutional validity. A period of legal uncertainty and consequently a deterioration of the investment climate in Berlin’s residential investment market is currently looming on the horizon.”
The average price of apartments transacted in the last 12 months stands at almost €120,000 for existing apartments while an average of around €289,000 per apartment has been paid on development projects. This represents an increase of 21% year-on-year on the average price of existing apartments transacted while prices of apartments in development projects have stagnated.
“The stagnation of average prices in development projects is a consequence of the increase in acquisitions outside of the A-cities. Smaller cities also frequently have strained rental apartment markets, meaning that new-build apartments in such locations also represent interesting investment opportunities.”
Acquisitions of development projects accounted for around 22% of the transaction volume in H1. Around 40% of apartments transacted in development projects were located in A-cities, which is significantly below the five-year average (55%). In contrast, around 16% of apartments transacted in development projects were in D-cities compared with a five-year average of less than 4%.
German investors accounted for approximately 95% of the transaction volume, which is even higher than the five-year average (78%). Nemecek added:
“While foreign investors are highly interested in the German apartment market, they are often unable to secure direct investments. In addition to the already relatively complex legal framework, the discussions regarding additional regulations are likely to further impede the market entry of investors who are unfamiliar with the German apartment market.”
However, investor demand for residential property in Germany is likely to remain high, particularly from risk-averse German investors.