Germany – a popular destination for cross-border real estate investment

At the Real Estate Asset 07 Congress, INSIGHT surveyed international investors and asset managers about trends and developments in the German real estate market. All of those polled identified positive trends in the marketplace. However, things don’t come easy for investors these days. Only those who choose thoughtfully will generate convincing earnings. Our summary of leading real estate professionals’ views and prospects shows what kind of engagement promises to be successful and what else has to be considered.

Positive trend despite lower return
Buddy Roes, Managing Director of ING Real Estate Investment Germany is optimistic: “We will keep stepping it up in Germany. Trading and office properties are on the shopping list. In many cases we will be part of the development. In Germany we forecast a positive trend in the area of real estate, despite global glitches.”

German real estate investments don’t sell like hot cakes
“The unfavourable changes over the past months in the real estate business are putting pressure on real estate investments”, confirms Hieronymus Hager of Jones Lang LaSalle Management. “Due to the demands of outside creditors for higher interest rates and for higher equity capital investment, the lucrative yields of previous years will hardly be achieved. Moreover, a re-evaluation is necessary due to the changed surroundings. Hardest affected are opportunistic investments. In contrast, prices for core plus and value added investments have dropped only slightly. Furthermore, there is a growing demand for homogeneous portfolios. Due to a generally stable economy and a growing workforce the area of business properties remains to be very interesting, especially new and modern properties. We still have moderate rent rates and the German economy is growing. Only professional asset management will ensure the resulting appreciation possibilities. Because of significantly increasing construction costs and a deteriorating capital market the portfolio managers of the apartment complex business face the toughest challenges. All in all, investors should assume that German real estate investments don’t sell like hot cakes.”

Commitment to mid-sized cities
For Denmark’s second largest fund launcher, Kristensen Properties, there is something much more decisive for further commitment than just Danish affinity to Germany: “Over the past five years we have carefully and conservatively invested 1.1 billion euros in Germany. Rent rates are still very low. We are expecting rent rises”, says Michael Cremer of Kristensen Properties. “Germany is very interesting for us because we enter the projects with an equity ratio of 20 to 25%. In addition, the Danish economy has stabilized over the years and we will continue to look furthermore in Germany for suitable real estates for our fund investors. We are interested in demographically well-positioned mid-sized cities, and there particularly in premium locations. Moreover, Germany is a steppingstone into Eastern Europe for us. Responsible asset management enables us compete for excellent locations: One example is the Wissenschaftspark Trier (Scientific Park Trier), which has a waiting list of prospective tenants."

Managing instead of “googling” assets
Wolfgang Wingendorf of the Treureal Group confirms the increasing importance of (class) B locations. “Investors once again are looking at selected properties, and they put emphasis on orderly due diligence. For a long time they just “googled” around, hopefully these days are over. We see a lot of British and Scandinavian investments in the German market. They are not just into short-term capital market gains, but, instead, they are looking for well-managed, long-term real estate assets coupled with a clear exit strategy.”

Real estate of corporate companies turns into a cash flow generator
According to John Wilson of CB Richard Ellis London, Germany is a safe haven for real estate investments that offers enormous opportunities and will continue to grow over the next few years. In Great Britain, in contrast, markets face much more competition, which explains why more international capital will continue to flow into Germany via London.

Copyright CBRE CB RICHARD ELLIS

At the same time John Wilson considers another dimension, which has been hardly recognized by investors: he compares the market volume of the European real estate investment market with the more than 10-fold higher real estate value, which is found in the financial statements of corporations. European companies own property worth 3 billion euros, but because of time-critical, fiscal or emotional reasons these are neither turned into cash nor utilized efficiently. “This will change”, predicts the Head of Corporate Strategies. “By 2015 property value of approximately 250 billion euros will have been released from the balance sheet. More and more companies, including German firms, will continue to realize that their assets are preventing growth by not being monetized”.

Copyright CBRE CB RICHARD ELLIS

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