German residential market hits record €17bn in first half

It's not just Germany's retail real estate sector that is hitting record levels in the first half of the year. Research figures in from advisory group NAI apollo show that investment in Germany’s residential portfolio market posted record half-yearly figures of €17.2bn in the first six months of 2015, more than double the volume for the same period in 2014 – and higher even than any full-year result since 2006.

According to Dr. Konrad Kanzler, head of market research at NAI apollo, "Due to company takeovers and large individual deals, the number of residential units traded doubled from 124,500 in the first half of 2014 to 269,400. The number of transactions rose by 23% from 150 last year to 185. The average unit price increased by 12.3% from €56,700 to €63,660."

Deutsche Annington’s €8bn takeover of its rival Gagfah in Germany’s largest ever real estate acquisition accounted for a large chunk of the 143.3% year-on-year increase. Deutsche Annington was also involved in the second-largest deal over the period, acquiring the €1.9bn Südewo portfolio from a consortium led by Patrizia.

The third-largest deal was Adler Real Estate's takeover of Westgrund in a deal worth €800m. Patrizia was again involved in the fourth largest deal, to buy a portfolio from a Scandinavian property fund for just under €800m. These four deals together accounted for 67.1% or €11.5bn of the overall volume.

Stefan Mergen, managing partner for valuation and research, said NAI apollo expected market activity to remain high in the second half of the year as buyers compete for a limited supply of stock. Prevailing high prices could encourage some investors to exit the market, but there will be plenty of demand for their assets.

‘At the same time, further company acquisitions are possible,’ he said. ‘The willingness to invest remains high. The larger listed companies in particular are on the lookout for investment opportunities in order to further expand their market presence.’

Mergen said the transaction volume for the year would almost certainly break the €20bn mark and could even pass €25bn if current market conditions are sustained.

Over the first half, Berlin cemented its position as market leader, with 22.2% of all transactions in Germany taking place in the capital, up from 16.7% in H1 2014. Second-tier cities also saw strong activity, including Magdeburg, Delmenhorst, Wolfsburg, Freiburg and Heidelberg.

‘Due to the supply shortage, investment activity remains high in secondary locations of prime cities and goes hand in hand with a growing risk appetite among buyers,’ Mergen said.

Interestingly, an analysis of all transactions in H1 2015 shows that one residential unit cost almost €63,660 on average and has therefore risen in price by 12.3% since the first half of 2014 (H1 2014: €56,700 /residential unit). Future price increases will continue to be fuelled by the ongoing shortage of supply particularly in the prime locations, say the researchers.

Listed property companies and REITs dominated the market, accounting for nearly three-quarters of activity on the purchase (72.9%) and sales (€74.3%) side. Non-listed property companies were involved in 7.6% of purchases, while asset managers and fund managers accounted for 11.4% of sales.

German buyers, led by Deutsche Annington, increased their share of the market to 89%, or €15.3 bn. "All large deals, which had a significant impact on the first half of the year, were carried out by German investors,’ said Kanzler. ‘It is therefore hardly surprising that German buyers increased their share of the overall transaction volume by 8.8 percentage points year-on-year." International buyers were responsible for an 11% share or €1.9 billion.