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Demand for German assets remains ‘as strong as before’

(Top L to R) Iryna Pylypchuk, Richard Betts, Carsten Loll,
(Middle) Samuel Vertrak, Thomas Veith, Nils Hübener,
(Bottom) Assem El Alami.

Germany is in a good place and investor interest remains high, delegates heard at Real Asset Media’s European Outlook – Germany briefing, which was held online yesterday.

“There’s a lot of capital out there ready to be invested and allocations have not decreased,” said Thomas Veith, partner and leader real estate/real assets, PwC.

“Demand for German real estate is just as strong as before,” said Carsten Loll, partner real estate, Linklaters. “Prices have recovered and even increased after the first lockdown in the spring.”

According to the findings of PwC and ULI’s 18th Emerging trends in Real Estate in Europe in 2021, Germany has four cities in the top 10. Berlin is at number 1, Frankfurt in 4th place, Hamburg 6th and Munich 7th.

“German cities are clearly seen by investors as safe harbours,” said Veith. “In general there’s a trend towards gateway cities, which is why London and Paris are back in second and third place on the list.”

Germany leads the way in Europe not just in winning cities but also in strength of returns and investor base. INREV’s Q3 Fund Index, which has just been released, shows that total returns are back into positive territory in Europe after a very negative Q2.

Germany delivers Europe’s best performance

“All European countries are showing positive figures, with the exception of the UK,” said Iryna Pylypchuk, director of research and market information, INREV. “But Germany delivered by far the best performance, with funds outperforming by 80bps on average. This shows the strength of the investment market, anchored to the strength of the local investor base which is the reason why Germany is so well-positioned.”

This year German institutions have invested in their own country. They had a clear field, as the Covid-19 crisis and travel restrictions forced many foreign investors to stay away. That will change in 2021.

“Conditions so far have favoured domestic buyers, managers with multi-country footprints, larger property markets with sufficient critical mass to have teams on the ground,” said Veith. “Our study tells us that foreign capital will be back next year, especially from Asia and other countries in Europe. We expect the diversification of the investor base to continue.”

There are concerns about the pandemic’s impact on the real economy, even if Germany is in a better place than most European countries (GDP is expected to decline by 6.5% in 2020, compared to a EU average of 9.1%).

“For Germany -6.5% is a severe recession, and although there will be a recovery in 2021, weakness will drag on into 2022 and 2023,” said Assem El Alami, head of real estate finance, international key accounts and syndication, Berlin Hyp. “However, the banking sector hasn’t suffered severe damage, so don’t expect NPLs to come to the market.”