German transactions on hold but rebound expected in Q4

The German market has been in wait-and-see mode for a while but it is poised to spring back into life later this year, experts agreed at Real Asset Media’s Germany Investment briefing, which took place yesterday at Greenberg Taurig’s offices in The Shard in London.

“Investment activity has ground to a halt in Germany,” said Oliver Kummerfeldt, European real estate analyst, Schroders Capital. “But investors are lining up already and are keen to do deals at the new pricing levels, as values have corrected and will correct more.”

Investment volumes in 2022 more than halved compared to 2021 levels.  “The music really stopped last year,” said Markus Beran, head of origination international investors, Berlin Hyp.

This year has seen a very sluggish start, as market players are waiting for some clarity. Uncertainty over the economic outlook, inflationary pressures and the rise in interest rates have hit sentiment.

“There is definitely a pause in the market and many people are licking their wounds, especially if they are highly leveraged,” said Tobias Schultheiß, managing partner, Blackbird Real Estate. “Everyone wants to do transactions but the time is not right yet. The market will recover by the end of the year and the deals will come back, because investors have money to spend.”

Oliver Kummerfeldt, European Real Estate Analyst, Schroders Capital

Now economic sentiment has stabilised but remains subdued. The forecast is for inflation to fall, even if core inflation remains stubbornly high, while GDP is expected to be flat before recovering towards the end of the year. This means that Germany should avoid a recession, or if there is a recession it will be mild.  

However, the expectation is that the ECB will intervene again and “as interest rates are still not at their peak we haven’t reached the bottom of the market yet,” said Kummerfeldt. “Things are still volatile and uncertain.”

There continues to be a mismatch of expectations between sellers, who want yesterday’s price, and  buyers, who want tomorrow’s price.

This holding game is not made easier by the difficulty in valuing assets in the absence of deals. “Valuers don’t have comparables in Germany,” said Kummerfeldt. “It is very hard for them because there is no market movement.”

Activity is expected to resume before the end of the year, partly because of more clarity and stability on the macroeconomic front and partly driven by opportunities in the market as more distress appears and valuations change.

“We’re seeing restructurings and more people coming under pressure, which will lead to opportunities,” said Florian Rösch, chair, real estate practice group Germany, Greenberg Traurig. “I see the big international investors from the US and Asia being sector-agnostic at the moment and just waiting for the right time. A lot of our clients are ready to invest, but they are waiting for prices to go lower.”