JLL: private investors stepping up in subdued German market

Private investors are coming to the fore in a subdued German market, delegates heard at Real Asset Media’s Germany Investment briefing, which took place recently at Jones Lang LaSalle’s London offices.

“Institutions dominate, but not as much as they did a few years ago”, said Jan Eckert, CEO Switzerland & Head of Capital Markets DACH, JLL, in his keynote presentation. “Private investors, such as family offices, are really stepping up and doing a lot of buying”.

Asset and fund managers are still the most active in the market, but private investors are in second place, well ahead of property companies, pension funds, corporates and developers.

As for banks “they are taking a very small share and they are selling rather than buying”, said Eckert. “Open-ended funds are also on a selling spree, aiming for liquidity”.

The German market is still reeling from the shock of rapid interest rate rises and economic slowdown. Transaction volumes in Q1 2024 were €6.3 billion, which is a lower figure than the average quarter in 2023, which was not a good year. Total volumes were €31.3 billion, a steep decline from the peak of €111 billion recorded in 2021 and much lower than the €73.3 billion average of the last ten years.

“The market is waiting for a signal from the European Central Bank”, said Eckert. “There are high expectations of an interest rate cut, it is dominating conversations”.

There are significantly less big transactions happening, so what little activity there is tends to be around smaller deals. Core and core plus assets account for 80% of deals, a share that has increased since last year as opportunistic and value-add deals are attracting less interest.

On the positive side, the share of foreign investors is over 30%, with €1.72 billion deployed in Q1 this year, and the sources of capital are diversified. The US accounts for around a quarter of investments, but players from Singapore, the UK, Italy, France, Sweden, Switzerland and Portugal have all dipped their toes in the water this year.

Berlin has attracted the most capital over the last five years, but in Q1 this year Munich has overtaken the capital. “One good thing about the German market is that it’s diversified, and the big 7 cities never move in the same direction at the same time”, said Eckert.

Looking ahead, Eckert warned that even if the ECB as expected acts in June and interest rates go down, “the market won’t suddenly spring back into life because there is too much competition from other sectors. But it will be an important signal that the peak has been reached and the way is down, so institutions will starts large-scale capital raising again and the impact will be felt on the market 3 to 6 months later.”

The fundamentals of the German market are clear: there is a massive gap between supply and demand on rental markets in different sectors, from residential to core office and from niche products to logistics.

So when the recovery comes, especially if deregulation happens, then “there is so much potential out there”, Eckert said. “The real rather than nominal value of assets should be a new focus: we need to reinvent the equity story of real estate”.