German market still in holding mode as uncertainty prevails

The German real estate market is still in holding mode as economic and political uncertainty prevails, experts agreed at Real Asset Media’s European Debt & Investment briefing, which took place yesterday at Groß & Partner’s offices in Frankfurt.

“We’re still far from a normalised transaction market and it will take time to get there”, said Markus Beran, head of origination international investors, Berlin Hyp. “We’re likely to have a wait-and-see situation for longer than we expected.”

There’s a limited number of transactions happening and they are of a limited size, so the feeling is that the expected improvement on last year has not yet materialised.

“The market is very dry at the moment,” said Philipp Ellebracht, country head Germany, Incus Capital. “There are deals happening under the radar, very secretive transactions that don’t appear in the media and that don’t really move the needle.”

The market is at a virtual standstill and real estate is still seen as risky. “It can only get better because it cannot get any worse,” said Beran.

It is a peculiarly German problem, said Jürgen Helm, head of European senior debt originations, PGIM Real Estate: “Investors’ confidence in the German market has taken a real hit, because of low economic growth and political instability. Other countries, like the UK, are doing much better.”

There’s been some improvement on last year but not enough, he said: “I’m afraid Germany is not back to being a safe haven yet.”

Even the fall in interest rates, which are expected to reach 2.5% next year in the Eurozone, will not be enough to transform the situation.

“Real estate is a long-term business,” said Helm. “We cannot hope this market will get much better just on the back of interest rate corrections.”

A more realistic hope is of a gradual improvement in sentiment and in the market, but no fireworks are to be expected.

“Next year transaction volumes might be a bit higher than now, but still nowhere near what was the norm five years ago,” said Ellebracht. “We need to attract foreign capital again, otherwise there is a real risk of a flat outlook for two years.”

The upcoming elections should result in more political stability, which will help bring foreign investors back. But many different pieces of the jigsaw puzzle need to slot into place to make a real difference.

Looking on the bright side, “we are acquiring more experience of dealing with challenges, and that will help us when the market returns to normality,” said Anna Kreuter, transaction management group leader, GLAS.