UK back in pole position but Germany ‘in a different league’
The UK is back in pole position but Germany is rock solid, delegates heard at Real Asset Media’s Germany Investment Briefing, which was held online yesterday on the REALX.Global platform.
“The German market is in a different league,” said Inga Schwarz, head of research, BNP Paribas Real Estate Consult. “It keeps attracting a lot of interest and there is still room to grow.”
The UK regained the first place in terms of investment volumes in 2021, but its performance is below its five-year average, while Germany is in second place but its performance is well above average.
“The A cities are attracting most of the capital,” said Schwarz. “Berlin alone with €11 billion is outperforming entire countries like Spain and Italy. Munich had a strong year, attracting €7.7 billion, more investments than Poland, Denmark or Finland. Cologne was the top performer last year and at €3.8 billion it is now bigger than Milan or Barcelona, while Frankfurt was below average at €6.7 billion.”
Last year single-asset deals dominated the market simply due to market availability, as there were no portfolios for sale. The stand-out deal in the office sector was the €1.4 billion acquisition of Tower1 in Frankfurt by Allianz Real Estate.
Offices accounted for almost half of all commercial deals, take-up of space has picked up again, growing by 27.4% last year, and resurgent demand has led to prime office yields declining to below 3%.
“Considering all the talk about the future of the office, the sector had a very good year in Germany, accounting for €30.7 billion and a 48% market share,” said Schwarz. “The logistics sector had its strongest year ever, emerging as a winner from the pandemic, while hotels are making a good comeback.”
Investment in the retail sector as a whole declined, but within the sector there was a differentiation between high street assets, that saw hesitant demand and muted activity, and retail warehouses and grocery-anchored retail, which attracted a lot of interest.
A wide range of players invested in the German market, with special purpose funds having the strongest presence, followed by investment managers, property developers, equity/real estate funds, insurance companies, REITs and property firms.
“Domestic players dominated the market with 61%, showing a strong belief in the German market and a commitment to deliver product,” said Schwarz. “Foreign players accounted for 39%, which is not a bad result given the travel restrictions in 2021.”
The majority of crossborder investors were European, accounting for 24% of the total, followed by Americans with 11%, while capital from Asia and the Middle East played a tiny role.
Looking ahead, there are five hot topics that are set to dominate in the German market this year, Schwarz said: the future of the office, the housing market, alternative assets which are becoming a focus for many investors, the ESG challenge and its social impact aspect in particular and inflation, which many fear will hamper the economic recovery.