Less forward deals, more profit-taking forecast in EY annual survey

Despite higher prices and a restricted supply, turnover on the German commercial property market reached €78bn in 2018, about 7% more than in 2017. But the high point in the cycle has been reached, according to the latest survey by consultancy group EY.

97% of the 300 respondents for EY’s annual Trendbarometer Immobilien Investmentmarkt from the banking, funds management, wealth advisory and residential housing industries said that Germany will remain an attractive location for commercial and residential property investment. However, the share of respondents viewing market prospects as “very good, without limitation” fell from 52% last year to 41% now.

According to Christian Schulz-Wulkow, DACH head of real estate at EY, “The price rises of previous years, federal and municipal government interference and capacity bottlenecks in the construction sector have been taking their toll.”

EY is expecting a transaction volume in 2019 of €72-75 billion, a slight reduction on last year. The share of respondents viewing Germany as “less attractive” has fallen slightly from 6% to 3%.

71% of respondents still view residential property positively, with 2018 seeing residential portfolios valued at €17.6m changing hands – 13% more than in 2017. However, there is very little supply on the market, and 89% of the investors surveyed were skeptical about political measures to ease the housing shortage. “Tightening up the tenancy laws won’t build a single new house”, says Schulz-Wulkow.

80% of respondents will have their main focus on commercial office property in 2019, with retail property losing further ground – only 41% expect high demand in the sector, down from 60% last year.

89% of respondents said their main investment emphasis would be on their own existing assets, rather than expensive new acquisitions, despite the construction industry operating at nearly full capacity across Germany. EY says forward deals will feature less this year, although in times of demand overhang they are normally a popular vehicle.

“Forward deals can represent a risk factor for investors and project developers through construction delays”, says Paul von Drygalski, EY director and co-author of the study. Still, 53% of respondents said they were likely to at least consider forward deals this year.

At this late stage in the cycle, profit-taking by selling off assets is likely to grow in importance, in EY’s view, confirmed by nine out of ten respondents, with the same amount saying they would be “extremely selective” when buying this year. “A sense of proportion when buying - determination when selling - that’s the motto for this year”, says von Drygalski.

More and more investors are looking at niche segments, particularly those that are closely associated with digital developments – 91% said they were looking at Co-Working, 85% said Serviced Apartmentsk, and 83% Micro-Apartments.

“The waning attraction of retail property is being balanced by a growing demand for Logistics assets, with the conflict of e-commerce and the bricks-and-mortar trade being played out directly in the real estate markets”, says Schulz-Wulkow.

93% of respondents are particularly observing the growing attractions of ‘last-mile’ logistics assets, while 80% of respondents are hoping for a further surge in digital offerings with the introduction of 5G mobile infrastructure as a catalyst for the sector.

“The new mobile telecom standard will create innovative building concepts and can help compensate for otherwise poorer physical location. Property owners will also benefit from the income possibilities of renting out roof space for installing mobile and broadcasting technology”, says von Drygalski.