The size of Germany’s “develop and hold” segment, i.e. the development of residential projects for companies own portfolio, in those seven cities is estimated to be worth around €33 billion and 5.2 million square metres of residential space over the next five years (projects in the planning and development phase). By comparison, the classic trading development segment, where new buildings are sold to third parties’ post-completion, amounts to around 11 million square metres.
According to Empira Group and Bulwiengesa’s study, the “develop and hold” sector is forecast to grow to €40 billion in the coming years, while trading development will stagnate, further shifting market share in favour of project development for companies’ own portfolio management.
Lahcen Knapp, CEO of Empira, explains:
“The figures clearly show what the market and our investors have been indicating for some years now: project development for institutional portfolios is no longer a niche sector and in the medium term will account for the bulk of new construction volume in Germany’s major cities. This trend is not limited to the residential sector either; office investments also offer great potential.
“The reasons for this lasting change are on the one hand the continuing yield compression in existing portfolios. In addition, there is a growing realisation that the development risk is clearly manageable in large German cities due to the ever-growing demand for residential space.”
Differences between top 7 in Develop and Hold share offer opportunities to investors
However, the clear trend in recent years towards steadily growing absolute and relative Develop and Hold volumes is having a very different impact in the individual top 7 markets. Nineteen percentage points lie between the location with the highest share of Develop and Hold business in the new residential construction market (Stuttgart with 41%) and the city with the lowest share (Düsseldorf with 22%). In descending order, Munich (35%), Berlin (34%), Cologne (33%), Frankfurt (30%) and Hamburg (27%) also offer different growth potential for Develop and Hold investors.
Around 27 percent of the Develop and Hold pipeline is currently attributable to private investors, while the traditionally dominant public players in the segment, such as municipal and state-owned housing companies, account for 54 percent. If one compares the space volumes that are currently in the construction or planning phases respectively in the top 7 in the Develop and Hold segment, the share of private investors is twice as high. This points to an upward trend and a significant increase in the involvement of private and, above all, institutional investors in the Develop and Hold business.