Optimising your entry and exit points on the German residential market

Peter Starke (Director, Head of Berlin Office, Aengevelt Immobilien)

Ralf Kind (Managing Partner, Dr. Lübke & Kelber, Arbireo Capital)

Rainer Schmitt (Partner, K&L Gates LLP)

Kai Schubart (Director International Client Management, Corpus Sireo)

Residential property is a strong sector in a very strong real estate market, the Refire 2013 conference heard.

But 10-12 years ago there had been a combination of small rent increases, the need for intensive management and little appreciation in value, said Peter Starke, a director and head of the Berlin office of Aengevelt Immobilien.

‘There was reason enough for pension funds and insurance companies to sell out of their large residential stock,’ he told the conference in London. ‘Now 10 years later we know they couldn’t have been more wrong, and they know it themselves because they are buying back into the residential market.’

In the early 2000s unemployment was five million and rising in Germany when it was falling in other countries. But reforms under Gerhard Schröder meant low unit labour costs had given Germany a competitive edge in the world market and unemployment was now at an all-time low of 5.8%.

As a result real estate prices had risen and volumes, which peaked at 110 billion euros in 2006 and 2007 before the Lehman crisis brought them down to under €40 billion in 2009, had climbed out of the hole.

‘We are seeing in 2013 volumes of about €60 billion. So rest assured there is no bubble in Germany,’ said Starke.

While yields in all real estate asset classes have fallen, rents have appreciated, he said. ‘In 2012 the rent of €5.80 per square metre per month in Berlin is roughly what it was 12 years ago in Stuttgart, Düsseldorf, Frankfurt and Hamburg. This is one of the reasons why there’s so much interest in Berlin.’

How would the market develop? Some 80% of households in Germany are occupied by one or two people, especially in the cities. By 2030 another 200,000 plus households are expected in Berlin where there is ‘no vacancy’ in real estate. In Germany s a whole, the prediction is for 730,000 more households in the next 12 years.

Ralf Kind, a partner of Dr Lübke and Kelbe and board director of Arbireo Capital, who made the comment that residential real estate was a very strong sector, said rents had been increasing at a reasonable pace of 2 to 3% over the last 10 years.

There was a very resilient occupier base who had, on average, seen a real terms increase in wealth over the past 10 years ‘so rents are still affordable’.

Kai Schubart, director of international client management at Corpus Sireo, said Germany’s federal structure gave the opportunity to invest in more than one hub. ‘It’s not just one city,’ he said. ‘It’s not just the top five or seven that are interesting for real estate but especially residential investment.’

The conference heard there are 70 cities in Germany with more than 100,000 inhabitants, a stable market where above average returns could be made.

The panellists discussed the possible impact of tighter rent controls by the incoming coalition. But it was pointed out that these would apply only in the hub areas of housing shortage, for example Berlin, Munich or Hamburg.

There were so many other opportunities in Germany for investment in residential real estate. Germany was, said Kind, a ‘safe haven and residential is even a safe spot in the safe haven.’