For Germany, 2020 is ending the same way it had started: on a high. The market is strong and demand is rising, but the economic slowdown will bring challenges next year, panellists warned at the Market Snapshot: Germany briefing which was held at RealX Global, the first virtual trade fair organised by Real Asset Media.
‘Germany went into the crisis in very good shape, with office vacancy rates at historic lows and a strong resi market, so demand is high, there has been no re-pricing of assets and yields are unlikely to move up for now,’ said Mark Holz, group head of research, Corestate Capital Group. ‘However, next year we’ll face more economic headwinds and I expect there will be downside pressures on rents’.
Office and retail rents are likely to fall across the board, he said, while logistics will be a mixed picture, with declines in some sectors but rent increases in urban, last-mile assets which have seen rising demand.
‘We’ve seen significant rent increases in the office sector these past few years, so even if they come down by 10% they’ll still be at high levels,’ said Thomas Veith, partner, real estate, PwC Germany. ‘We believe that offices will come back strongly and that the urbanisation trend will not go away’.
As for logistics, he said, ‘we expect the increased levels of e-commerce seen during lockdown to remain as a permanent feature and therefore demand for logistics space to stay high’.
Inner city mixed use most successful
The most successful trend will be mixed-use in inner city locations, ‘as these assets are tailored to current urban development guidelines and they are what people want as well’, said Holz.
In order to create them there will be a lot of re-purposing of assets, from offices to residential and even from hotels and warehouses to other uses, but local planning regulations can be a problem.
‘It is not decided by federal law but by local authorities, so it can be an unpredictable and very slow process,’ said Veith. ‘There really needs to be a mindset change, especially when it comes to much-needed mixed-use’.
It is a real challenge, said Tobias Schultheiß, founder & managing partner, Blackbird Real Estate: ‘One planning authority may suggest repurposing from office to residential, then the local government changes and the rules suddenly change as well’.
The expected economic slowdown may hit office and retail rents, but it will benefit other sectors like student housing.
‘We know there will be a period of slower economic growth and higher unemployment next year and usually attendance rates at University go up in times of economic crisis,’ said Holz.
A degree is seen as a good alternative to getting a job or as a better chance of finding employment in a competitive and fast-changing labour market.
That’s why it makes perfect sense to invest in student housing in Germany, because it’s a sector that will continue to do well,’ he said. ‘The student population has gone up steadily and will continue to do so, including many foreign students who will choose Germany over Brexit Britain or the US’.