German real estate to continue to profit through crisis – E & Y
The debt crisis, ongoing fear of inflation and low interest rates will continue to fuel demand for German real estate through 2013, according to the 7th annual Trend Barometer German Real Estate Investment report recently published by consultants Ernst & Young.
Transaction volumes across the German market as a whole are expected to closely match last year’s volume of €36bn (the highest level since 2007) due to Germany’s “big internatonal attractiveness”, conclude the researchers, with investors increasingly spilling over into secondary locations beyond traditional ‘core’ to find suitable investment opportunities. This is a reversal of last year’s survey, which found respondents expecting reduced activity for the year ahead.
Ernst & Young senior partner Hartmut Fründ commented, “Although the German market is operating in a difficult environment, we more or less see stable transaction volume on 2012, which surprised everyone with a very strong fourth quarter.”
The survey analysed responses from 120 companies active in German real estate investment. 99% of respondents agreed Germany would remain ‘highly attractive’ for investor in 2013, but several noted that there were now many more competitors chasing the same assets.
Residential prices in the cities are expected to continue to rise, even in secondary locations. Large-scale transactions of residential portfolios are expected to feature strongly again this year, as is renewed popularity of office investment (more than 50% of respondents) over retail property.
Among the other trends that the survey revealed for Germany are that insurers and pension funds will increase property debt activity in the country, a rising demand for mezzanine capital, financing restraints for banks, rising availability of product, and the return of CMBS deals.
Residential assets, especially in Berlin, will remain an investment focus, with 75% of investors expecting rising prices for prime assets and stable prices even in the periphery. In the office sector, Frankfurt is expected to be dethroned as market leader by Hamburg and Munich. The most active seller groups are set to be open-ended funds, international funds, opportunity funds, closed-end funds and banks.
Those seen with most real estate appetite are family offices, followed by insurers and pension funds, international funds and listed property companies. For non-performing loans, investors expect banks to implement mutually agreed restructurings and extensions ahead, but banks are seen as more likely to move to foreclosure this year than last.