‘I see more development driven by demand this year and in 2020’

Christof Winkelmann, Member of the Management Board, Aareal Bank

Europe’s real estate sector will focus a lot more on development this year and the next but this time it will not be speculative but entirely driven by demand, Christof Winkelmann, Member of the Management Board, Aareal Bank, told Real Estate Day.

Aareal will be first in line to acquire the new developments as they plan to use their ‘strong card’ which is ‘assembling large portfolios across many countries in Europe in a very efficient manner’, he said, tapping into the trend to buy platforms or amalgamating assets into platforms to then potentially sell them on.  

The European market is more subdued and volumes are slightly lower ‘but still at an all-time high’, Winkelmann said: ‘I would describe the sector as stable and adequate’. The market is very crowded and competitive but ‘within Europe you can always find the good pockets’. 

Aareal has been expanding beyond offices into other sectors, he said: ‘Hospitality has always been a big factor for us, with our specialist groups at head office working closely with our local branches, and we continue to be very active. Against all odds, I think retail has a place in the industry’. 

Last year the group started investing into student housing: ‘It was a new asset class for us, half way between a hotel and a residential building, and we found that it has very attractive returns. Rather than focusing on big cities we opt for cities that have the right universities’. 

The US also continues to be a good market, Winkelmann said, because of its size and variety. ‘You can fit Germany into California, which gives you an idea of how big a market it is. It is also very interesting for us from a risk-return perspective because it has an array of different property types. It is not a new thing for us, we have been there for years with the same people but we still find the US a very attractive place compared to many other countries’.

On a global level, investors are adopting more defensive strategies. ‘If you look at the industry from investors’ point of view, they have extra money to invest, they can try to buy 20 properties, which are not there because of the massive volumes that are being traded,’ he said. ‘They also ask themselves at what point in time is the return more attractive, is it a 50% LTV or 60 or 70% LTV. Most investors currently tend to have a lower leverage’.