German resi portfolio sales show signs of market fatigue

According to international real estate advisors Savills, German residential portfolio transaction volumes in the first half of this year (H1 2014) totaled €6.8 billion, an 18% increase year-on-year over the €5.8 billion in 2013. Savills said in a recent note that the number of transacted units rose by almost half during the same period to about 132,500, with the average price per unit dropping as a consequence by a fifth during July 2013 to July 2014.

Whilst the half year figures were strong, Savills does caution that only €1.4 billion was invested between April and June 2014, the second quarter, compared to €5.1 billion in the three months previously.

Karsten Nemecek, Managing Director of Corporate Finance and Valuation at Savills, said: “We have seen a succession of large residential portfolio sales, some totaling over €1 billion, which started in February 2012 with the sale of the LBBW apartments. We do not believe we will see many more transactions of this scale other than mergers and acquisitions, such as the takeover of GSW and Estavis.”

Savills finds that investment activity also shifted towards secondary locations in H1 2014. In 2013, the prime markets of Berlin, Munich and Dusseldorf accounted for 22% of activity, whereas in 2014, Berlin was the only remaining prime market on the list of top five most active markets, joined by Kiel, Bremen, Möngchengladbach and Lübeck.

Matthias Pink, head of research at Savills, commented: “Given the substantial increase in prices and the lack of product in the prime markets, investors are increasingly looking towards alternative locations.”

The firm states that private equity companies took advantage of this lowered risk aversion of investors to become the most active group of sellers, accounting for €1.7 billion of volume transacted. Listed property companies and REITs were the most active buyers, together purchasing about €3.8 billion or over half of German residential portfolios. In terms of nationalities, Germans were the most active buyers and sellers accounting for 75% and 33% respectively, while Austrian buyers accounted for 16%, and UK and Swedish buyers both 2%, while among sellers the Americans were the most active after the Germans at 32%.

Nemecek added: “We believe the second half of the year will follow similar trends to Q2 with transaction activity primarily taking place in small to medium lot sizes, as well as outside the prime markets. As demand exceeds supply, even in secondary and tertiary markets, we expect prices to rise in these locations. In terms of total annual turnover we predict it could be considerably above €10 billion although is unlikely to reach the €14.3bn seen in 2013.