‘More foreign capital targeting Germany’

Germany is consolidating its position as investors’ favourite destination in Europe, Thomas Kotyrba, Senior Research Analyst, BNP Paribas REIM, told Real Asset Media’s Capital Flows & Investment Opportunities Investment Briefing, which was held in Munich recently.

‘The most striking point is that Germany overtook the UK as the main investment target within Europe a year ago and it has remained at that level since,’ he said. 

Despite high prices, a tightening supply and an economic slowdown, volumes remain at a high level.

‘The share of foreign investment in the German market has gone up again,’ Kotyrba said. ‘Not back to the 70% levels of 2007, at the peak of the last cycle, but at a good level of 40-50%, with spikes over 60% in Berlin’.

What investors really like is the polycentricity of Germany’s economic structure, he said, which makes it more balanced and diversified.

Berlin represents 4% of the country’s GDP, compared to 23% for London and 30% for Paris, he pointed out. Looking at the office sector, London represents 75% of the UK office market and Paris 73% of the French market. 

The German picture is strikingly different: among the big cities Munich has the highest percentage of the office market at 26%, with Berlin a close second at 25%, followed by Frankfurt at 19%, Hamburg at 18% and Dusseldorf at 12%.

What this means in practice is that ‘there’s a plurality of office markets with a higher liquidity of investable stock and a broader geographical base for portfolio diversification’, Kotyrba said.

The wide geographic distribution of leading companies also helps to create a diverse market structure with opportunities in Tier 2 and Tier 3 markets, he said, leading investors to find additional clusters of growth and to follow the ‘hidden champions’ in different areas, including regions with a strong academic focus like Leipzig and Dresden. 

The picture is positive in Germany but looking ahead, said Kotyrba, ‘an economic downturn or a recession could have an impact on demand for commercial floor space, so rising vacancies are a possibility as well as stagnating or even falling rents’.

The advice to investors is to go for quality and opt for less risky assets.