BIIS Conference hears bullish projections for Germany through 2018

With the demise of the traditional January CIMMIT conference a couple of years ago, the likewise in January recurring BIIS event for Germany's real estate fund managers seems to have scooped up a lot of the overspill.

This year's gathering (the seventh) of the BIIS Jahrestagung at Frankfurt's Steigenberger Airport Hotel was filled to capacity with more than 300 delegates, anxious to take the pulse of the German real estate climate before the year gets fully underway. According to the organisers, this was 50% more than last year's attendance.

REFIRE joined the gathering to garner our own impressions of what can still only be described as a very optimistic industry sector, with little on the horizon causing too many of the delegates too lose much sleep at night.

If anything this led to a series of largely uninspiring presentations from the speakers, most of whom paid nodding reference to rising interest rates as the only possible danger to prevent the good times rolling on. While at the same time assuring the audience that this was unlikely to happen any time soon.

So prices have much further to rise, then? Several speakers cautioned their listeners against revaluing their holdings upwards in the light of current optimism, or indeed suggested that "now might a good time, while such partly absurd prices are being paid, to optimise their portfolios", i.e. sell.

The consensus among most delegates was that German real estate was continuing to benefit from external economic uncertainties, with a straw poll on the day showing 42% seeing positive effects for Germany and 38% seeing at least neutral effects. Less than 20% thought any external economic scenario would prove damaging for German real estate prospects. What they did envisage, however, was that the long arm of government would increasingly be looking to impose penalties on property owners, in the form of heavier taxes and other disincentives to ownership.

In one of the sprightlier presentations that we've witnessed from a bank chief economist, Helaba's Gertrud Traud told the audience "Sure there'll be another recession, but not in 2016, nor next year, nor the year after." The oil price will remain low for at least the next five years, she forecast. "And we'll benefit from that", she said

Likewise for Barbara Knoflach, long-time head of SEB Asset Management in Frankfurt and now global head of investment at BNPPRE, blue skies are still stretching out for the next three years in the industry, largely as a result of low levels of construction despite the low interest rate.

Leaving the Asian hype aside, she said, the real growth is coming from North America, along with increased demand for the asset class from higher earners and the real high net worth individuals, as well as further commitment from the myriad of sovereign funds and other pension funds seeking congruence of their long-term liabilities. As long as the spread between real estate yields and the risk-free rate of return remains at 300 to 400 basis points, new entrants will be drawn into the sector, she said, with many being drawn in from the capital markets.

With both Frau Knoflach and Thomas Schmengler, CEO of giant fund group Deka Immobilien, agreeing that the good times will continue, both addressed another emeriging theme. For the bigger investors the European market is getting smaller, with the core European countries (UK, France, Germany) gaining in importance. (These countries received 56% of all investments last year.)

However, investing in niche sectors within these markets is now more important than having a broad presence based across all Europe. Within these niche sectors, sustainability and environmental aspects were increasingly to the fore in attracting the top tenants.

Not everyone was so euphoric about the prospects for the next three years. Daniel Tochtermann of Credit Suisse. Instead he asked his audience – "Where are we at the moment in the economic cycle? How dangerous is it when central banks with their low interest rate policy are driving people into investing in real estate? When will that go into reverse?" He also questioned Helaba's chief economist Traud's assertion that rock-bottom oil prices was an unmitigated blessing for Europe's consumers. What about the effect that such a low price will have on countries such as Russia and Saudi Arabia, he asked. What, indeed.