Safe haven Germany a magnet for investors in uncertain times

Germany’s long-held status as a safe haven will serve the country well in these unsettled times, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held online this week on the REALX.Global platform.

“In times of uncertainty there is more interest in stable countries like Germany and in core assets as well,” said Thomas Veith, partner, leader real estate/real assets, PricewaterhouseCoopers.

Thomas Veith.

The political backdrop helps, as last year’s uncertainty over the post-Merkel era has dissipated with the formation of a new coalition government.

“The negotiations’ outcome was positive and we have a stable government, which is key,” said Carsten Loll, partner, real estate, Linklaters. “It reflects different viewpoints, bringing everyone together, it takes the economy seriously and it is focused on the detail, so I am very positive.”

As the pandemic recedes and travel restrictions are lifted international investors are set to make a comeback in greater numbers.

“The active involvement of domestic capital provides a strong base for the market, but looking ahead we expect more non domestic money coming into Germany”, said Christina Ofschonka, managing director, head of core strategies, AEW.

Germany has always attracted strong demand from international capital and the recent decline due to the pandemic is just a blip.

“The percentage of foreign capital used to be over 50%,” said Markus Beran, head of origination international investors, Berlin Hyp. “It is now lower but the interest is still strong, both from core money and from investors searching for higher returns and willing to have higher leverage.”

However the level of overall risk has declined, he said: “There’s a tendency for lower leverage because there is so much equity in the market.”

Higher total returns may not be easy to achieve in the current environment, so foreign investors chasing them need to find the right product, while institutional investors may struggle to find enough core assets, as demand consistently outweighs supply.

Record investments in resi sector

This is certainly the case in the residential sector, which has attracted record levels of investment last year.

Rainer Nonnengässer, Executive Chairman, International Campus.

In 2021 transaction volumes in the resi sector more than doubled to €51 billion, partly due to one mega-deal, the €22 billion takeover of Vonovia by Deutsche Wohnen, which set a new all-time record.

The level of interest in resi is reflected in the size and cost of the portfolio transactions: last year 81% of investments were above the €100 million mark, compared to 63% in 2020, according to BNP Paribas data.

The perfect example is Berlin, which has regained its status as a great capital and has become a magnet for investments, largely thanks to its big stock of resi and its attractiveness as a city to live in.

“It has taken twenty years to reach its rightful place, but now Berlin is an investment Eldorado,” said Beran. “It might never be on a par with Paris or London, but there is a great positive dynamic in the market which is good for Berlin and good for Germany. The only downside is that it’s becoming very expensive.”

The German government has a target of 400,000 new resi units but construction costs are rising and there is less funding and subsidies from the development bank KfW as it transitions to a new system that promotes the construction of energy-efficient homes.

“Despite the setbacks in development financing we expect very strong demand for student accommodation, micro-living and all urban solutions,” said Rainer Nonnengässer, executive chairman, International Campus.

“We know that Anglo-Saxon investors targeting the sector in Continental Europe have  €6-7 billion capital ready to deploy, which exceeds the sector’s value in Germany. Given such high demand, we’re extremely positive on prospects for the sector in 2022.”