German 'attractiveness for investment' rises – Berlin Hyp study

Berlin property lender Berlin Hyp's second comprehensive real estate survey "Trend Indicator" has recently appeared, and its principal finding is that Germany is actually increasing as an attractive location for commercial real estate investment. This year 87% of 140 German and foreign survey participants gave Germany a positive rating, up from 82% last year, say the bank's researchers.

43% of respondents rated Germany as 'much more attractive' compared with 28% last year, with the key factors this year being the current low interest rate environment, the economic framework conditions and the increasing scarcity of supply on the market. The big cities of Berlin, Munich and Hamburg remain the most attractive regional real estate markets.

Around 84% thought worldwide conflicts would reinforce Germany’s status as a safe haven while a third of respondents thought demographic changes, more people moving from rural to urban areas, would have an impact on property over the next 10 years and half expected the trend to have clear repercussions by 2030.

Nearly 75% expect the pressure on margins will increasingly drive banks into accepting higher risks. “However, it is extremely important to maintain appropriate risk discipline in the current market situation with sinking margins,” said Gero Bergmann, board member of Berlin Hyp, commenting on the results.

Meanwhile, the Quarterly Financial Barometer that we have been tracking since 2012 here in the pages of REFIRE will no longer be appearing under the auspices of Berlin-based Flatow Advisory Partners. The index, which tracks lending practices in German commercial real estate financing and banks' willingness to finance investment, will henceforth be know as the BF.Quartalsbarometer and will fulfill the same function as in the past, but with a new sponsor responsible for its issuance. REFIRE will continue to publish any interesting findings the quarterly study throws up, as in the past.

Market research group BulwienGesa will remain in charge of carrying out the survey and publishing the feedback from respondents. The surveying covers about 90% of German commercial real estate financing, recording actual and intended financing from a panel of more than 140 financing institutions. The Stuttgart-based BF.direkt AG is an independent specialist for commercial real estate financing, and along with BulwienGesa is already a sponsor of the German Debt Project managed by the IREBS Real Estate Academy at the Univeristy of Regensburg.

Meanwhile the DIF Index (DIFI), another index managed by property adviser JLL and the ZEW (Zentrum für Europäische Wirtschaftsforschung) which also measures the temperature of the property financing climate, registered a score of 29.7 points for Q2, 9.4 points lower than the record-breaking previous quarter. It was nonetheless the second-highest ever score since the index was introduced in 2011.

Although only a few of those polled said the financing climate had worsened, said JLL, the aggregate of positive and negative assessments for all four real estate categories- office, retail, logistics and residential, fell. Retail real estate, down 18.8 points, saw the greatest decline, followed by reductions for residential, logistics, and office real estate. In terms of financial expectations for the coming six months, the value for the office segment, in contrast, was up 2.5 points to 18.8, while all the other segments fell, sometimes significantly.

Respondents were also asked for their views on typical margins and loan-to-value ratios for financing core and value-add commercial properties. Typical margins for financing office, retail and residential (i.e. portfolios) in the core to value-add segments are seen as under 150 bps, with the lowest in both risk categories being for residential (at under 100 bps). Margins of 200 bps or more are no longer being got by banks. The longer-term trend to even lower margins is still evident. Across both categories, the asset class with the highest margins is, not surprisingly, logistics.