Realcast: German resi stress test, Coima goes social, Maersk picks CBRE, ESG in Amsterdam

In the headlines this week…

The past seven days has notablyincluded the 400th day of the Ukraine War, the first occasion that a sitting or former US president has been indicted, continuing riots in France about pension reform, and reports from Oxford economics about the instability of the banking sector impacting on sentiment in real estate sector more widely, but with strong labour markets helping prevent this pushing through to consumer demand.

In Germany, inflation driven by the increased cost of energy, has diminished the attraction of German residential real estate and a 40% increase in rents would be necessary to reverse the trend according to Berlin-based technology and consultancy company PREA.

The firm points out that the yield gap between bonds and existing investments shrank after interest rates increased and is negative when compared to US Treasury bonds. For the sector to become attractive for institutional investors again, yields for residential real estate in Germany must rise by about 250 basis points – equivalent to an increase of about 40%, PREA reports.

The firm’s “multidimensional” stress test examined the resilience of Germany’s housing markets and concluded that Berlin, along with major cities in eastern Germany including Chemnitz, Leipzig, and Rostock, has a high risk of residential rental default if there is prolonged high inflation and a recession. Households with low incomes and in industrial regions are particularly affected by payment difficulties.

Berlin was the only city among the top seven cities with a very high rental default risk.

More widely in Europe, investment manager AEW says yield compression can be expected in the residential sector from next year. However, the firm forecasts that residential yields will increase 50 bps this year.

The sector will retain its appeal to investors, and its defensive characteristics along with its ability to hedge inflation through income growth, remain the principal attractions. Meanwhile, the long-standing undersupply of residential property throughout Europe will become even more acute, squeezed on one hand as higher interest rates increase demand for rented housing, and on the other by environmental legislation which will reduce the amount of lettable stock.

Elsewhere in the sector, Milan-headquartered property investor Coima is expanding into social and subsidised housing in Italy and has launched a new social housing fund.

The closed-end Coima Housing Fund, dedicated to the sustainable living, will develop a range of social and subsidised housing types and student accommodation and has a target size of more than €400m.

The initial scheduled closing will be at around €300m and the primary investor and sponsor is the Coima ESG City Impact Fund (CECIF), Italy’s largest dedicated urban regeneration fund.

Banking group Intesa Sanpaolo will also invest in Coima Housing Fund, as part of its mission to support the development of 8,000 social housing homes for young people and seniors.

Also in the residential market that Harrison Street’s joint venture with Apache capital and NFU Mutual is funding Modo Living’s £302 million build to rent project in Birmingham.

In healthcare real estate AIF Capital group acquired three care facilities in Germany for its open-ended healthcare fund increasing its portfolio to 15 assets, also reflecting the positive sentiment toward senior living and healthcare heard at MIPIM.

Logistics has again been in the headlines, and Garbe is planning a €76 million multi-let scheme in Leipzig, Germany. And, in another indication of the strength of the sector Copenhagen-headquartered shipping and logistics company Maersk announced it is hiring CBRE to support its supply chain strategy, a subject that we will return to at the Transport & Logistics event in Munich next month.

CBRE Investment Management was also in the news with the sale of two Swedish shopping centres to NIAM.

We’ll be meeting industry leaders in Amsterdam and Utrecht this week with Impact’s managing editor Ron Van Blois where we’ll be discussing ESG and social impact topics and will feed this back in next week’s Realcast.

Click on the video to see the full discussion or listen to the podcast below.