However, JLL insists this investment haul would reflect remarkable stability in the context of geopolitics, the potential impact of Italy’s budgets deficit, lower real estate return expectations and a shortage of product coming to market.
JLL explained that it “expects investor demand to remain at a high level” despite concerns at the global and European level have not diminished in the past three months.
“On the contrary: in addition to Brexit, Italyʼs public debt and the escalating international trade wars, there has been an ominous rise in tension between the USA and Iran in recent weeks. Taken altogether, this does not provide a good basis for a stable and investor-friendly environment. In the US, the Federal Reserve is already sending out first signals of a cut in interest rates, and the ECB is wondering which monetary policy “arrows” it can still pluck from its quiver if the economic climate continues to deteriorate.
“The dark clouds are still only on the horizon, and have not yet had any real impact on the investment market because the continuing robust performance of the lettings market, as well as opportunities driven by low interest rates, have too great an effect.”
JLL warned investors would be well advised to make themselves aware of the current risk factors and reassess their investment strategy in relation to the different asset classes. “For example, foreign investors are currently considering whether an investment in residential property in Berlin is still an attractive proposition given the ongoing debate about rental caps, brakes on rent and expropriation. The much-lauded ʻsafe-havenʼ of Germany is starting to crumble in light of these inconsistences.”
In the multifamily sector, only €8.1 billion was recorded in H1, equivalent to three quarters of H1 2018 volumes. Although the €2 billion Buwog acquisition by Vonovia, involving the resale of the BGP portfolio with 16,800 residential units to ZBI/Union Investment, the total number of transactions fell by more than 17%, according to JLL. Small and medium-sized deals dominated the market. Almost 40% of all transactions were between €20 million and €100 million in size. JLL Research explains:
“The mood on the German residential investment market has reached its nadir. Residential investors and portfolio owners have for some time already been facing a level of political interference that goes far beyond a proportionate regulation of rental housing markets. After the introduction in recent years of rent control measures in several German cities that limit rental price increases to 10–15%, rental caps are currently being trialled in Berlin.
“From January 2020, residential rents should be fixed for five years with retroactive effect from June 2019. Regardless of possible and not yet specifically defined exceptions in the case of shortfalls and the legal effectiveness of such a law, the political signals have placed residential investors on high alert, and not only in Berlin. Instead of implementing structural, legal and financial measures to support housing construction and the development of infrastructure between the worst affected cities and their immediate and wider surrounding areas, prohibitions are being imposed.”