Waterway Investments: investing in non-CBD Germany in a maturing cycle

Germany is a real estate market historically dominated by risk-averse domestic investors, but a confluence of drivers has seen the international flow of capital into the company multiply across the market’s broad risk spectrum.

Germany has an eclectic asset base of prime through tertiary stock spread across almost 8o cities with population densities above 100,000 people.  Core investors, both domestic and international, in the early post-global financial crisis (GFC) years, coalesced around the country’s top three to seven cities. Thereafter, investors slowly entered a second-tier group of 10 to 20 cities, which had strong economics linked to university-associated demand, business hubs, and proximity to the top five cities and regional hubs.

“Beyond those cities, a wide variety of ‘hidden champions’ can be discovered,” explains Karsten Kohlmann, managing partner and co-founder at Waterway Investments, an independent, specialist German real estate investment brokerage focused on non-prime assets. “Manoeuvring of those waters can be quite challenging for international investors.”

This theme is explored in a six-page special feature inside the latest edition of Real Asset Insight available in print at EXPO Real conference. A full itinerary of our investment briefings at EXPO can be found here.  

In the decade since the GFC, Kohlmann says the knowledge and investment mobility of domestic and international capital into Germany has rapidly improved. “Pressure from overcrowded home markets and excess liquidity has driven more and more capital into Continental Europe and Germany. Open- and closed-ended German investors have been pushed down the pecking order by international conglomerates and family offices in the hunt for yield. Strong listed companies in main and niche sectors with often low costs of capital have emerged, which in return leads to all other investors being pushed down the pecking order.”

The result, Kohlmann’s fellow co-founder, Christian Zilly, also a managing partner at Waterway Investments, says is “a much larger investor universe with many investors exploring unchartered waters and new asset classes, which is a challenge for investors and advisers”.

Germany’s increased popularity with international investors in recent years has pushed yields down to all-time lows. The question now is whether there a possibility that an economic contraction will reverse the tide for German property too? “Germany’s problems are almost entirely driven by a down-turn in manufacturing,” explains CBRE’s Neil Blake. “What is remarkable about Germany is the strength of services. Further, it looks like service sector growth has actually accelerated so far in 2019. This is important for commercial property.

Pick up a copy of the latest Real Asset Insight at EXPO to read the full six-page article.

james.wallace@realassetmedia.com