The market has changed dramatically in Germany in the space of a few weeks, delegates heard at Real Asset Media’s Germany Investment Briefing, which took place online this week with a record over 300 participants from 25 countries.
‘Germany recorded the strongest opening quarter in its history, with a record €27 bn transaction volume in Q1, which pointed to a €100 bn figure for the year’, said Matti Schenk, Associate Research, Savills Germany. ‘But this is already history. It is a new world now, as Covid-19 marked the end of the positive run and changed almost everything’.
Demand and supply have been affected by the lockdown measures put in place to combat the epidemic. Germany’s GDP will decline by 7% this year, according to the IMF, while the authoritative IFO institute predicts a fall of anything between 7% and 20 per cent.
‘While it is difficult to make predictions, it is clear that demand for real estate is set to decrease substantially, at least in the short term,’ he said. ‘There are no rental increases on the horizon, and over the next month investment activity will decline significantly, although deals at an advanced stage will still go through’.
Savills data show that the number of transactions at the end of February – around 600 – was in line with the first two months of 2018 and 2019, but there was a marked slowdown to below 500 in March.
‘It is a new market environment and activity has slowed down, but the big strategic transactions are going ahead as planned, with little effect on pricing or income’, said Marcus Lemli, Chief Executive Officer of Savills Germany and Head of Investment Europe, Savills.
Financing is also becoming an issue. ‘Banks are still open for business but they are more cautious, funding costs are higher, liquidity is becoming more expensive,’ said Holger Schmalfuß, Senior Originator International Investors, Berlin Hyp. ‘Syndication is very difficult, especially for prices agreed before Covid-19’.
Caution will be the rule, at least in the short term, he said: ‘Given that the property financing market lags behind the real economy, there might be trouble ahead for banks. It all depends on the length of the lockdown and on how quickly the economy recovers’.