Success can be too much of a good thing for German real estate as some investors are put off by high prices, delegates heard at Real Asset Media’s European Outlook Investment Briefing in Frankfurt recently.
‘Germany is a very attractive market because it is strong, stable, transparent and easy to operate in,’ said Christopher Mertlitz, Executive Director, W.P. Carey. ‘It is the key market in Europe, but at current pricing levels the question is whether it is really that sound an investment anymore. The big challenging question, which I cannot answer, is whether prices have gone too far’.
Brexit uncertainty was a crucial factor in investors’ decision to switch to Germany because the UK was no longer seen as a safe destination for their capital.
‘There is a bit of a herd mentality in real estate, everyone piling in and prices going up,’ he said. ‘As investors avoided the UK Germany became the remaining safe haven in Europe. We are present in a large number of countries, so we can afford the luxury of being selective. At these price levels, we might not do a deal in Germany for some years and only come back when we see opportunities and we are ready to invest again’.
Besides high prices and stiff competition for assets, investors have to deal with a slowing economy, some political uncertainty, rent regulations in Berlin and a tightening of the tax regime.
‘Political risk was not an issue for many decades in Germany, but now investors have to take it into account,’ said Christian Zilly, Managing Partner, Waterway Investments. In some cities markets are so tight that politicians have to act, he said, but their actions have consequences. Blackrock, for example, decided not to invest in Berlin residential any more because of the rental freeze and introduction of caps.
‘It is true that by German standards now there is more uncertainty in the market, but compared to the uncertainty in other countries Germany still looks very sound,’ said Mertlitz. ‘There are signs that its relative attractiveness compared to other European countries will decline, but I am still very positive about the country and its economy for the next 3 to 4 years’.
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