German residential portfolio sales in Q1 back at 2007 levels

A recent study by property advisory group NAI Apollo casts useful light on the makeup of the investment market for German residential portfolios over the first quarter. With a total turnover of €5.3bn in the quarter, it’s further evidence of the surge in investment volume across nearly all asset categories in Germany, bringing levels back up to 2007 volumes. Year-on-year, this year’s Q1 is up a whopping 152.4% on last year’s €2.1bn in the first quarter, representing about 98,300 residential units across 78 portfolio sales (a portfolio consisting of more than 30 units).

According to Dr. Konrad Kanzler, NAI Apollo’s head of research, “Three large transactions that each amounted to more than €500 million contributed to this quarterly result and accounted for 61.7 % of the transaction volume. These transactions concerned two purchases by Deutsche Annington Immobilien (the Vitus-Portfolio with 30,000 units for €1.4 billion and the DeWAG-Portfolio with 11,500 units for €970 million) and the acquisition of the DGAG-Portfolio with 18,000 units by the Immofinanz subsidiary BUWOG for €892 million.

In total, transactions larger than €100 million apiece accounted for 76.6 %, or around €4.1 billion. The remainder were distributed among the less than €100 million categories, with shares ranging from 7.8% (€25 million-€50 million category) to 2.6% for the less than €10 million category.

Buildings in economically strong cities and urban centres continued to be the most sought-after real estate in the first quarter of 2014. Among Germany’s bigger cities, Berlin still had the highest share of assignable portfolio transactions at 14.4 % (Q1 2013: 20.5%). At the same time, secondary locations were of growing interest to investors. “In a comparison of the federal states, most purchases took place in North Rhine Westphalia with a 24.3 % share. However, Baden-Wuerttemberg recorded the highest growth of +4.3 percentage points compared to the previous year's quarter. As a result, this state accounted for 5.4 % of the transactions, with most purchases taking place in Stuttgart and Mannheim”, said Kanzler.

As in previous quarters, listed housing companies were the most dominant investor type in the first quarter of 2014. They accounted for around €3.1 billion or more than half of the total transaction volume (58.3 %; 24.8 % of the purchases). Next in line were real estate companies, which accounted for € 1.4 billion or 27.1 % of the transaction volume (18.6 % of the purchases). “This represents huge growth compared to the first quarter of 2013. The listed companies increased their transaction volume more than six-fold, primarily due to the large purchases by Deutsche Annington. The real estate companies increased their volume more than 15-fold, due in a large measure to the BUWOG purchase”, said Stefan Mergen, managing partner at NAI Apollo valuation & research.

Where are the investors coming from? Not surprisingly, Germans dominated the market, accounting for about €4.1 billion or 77.0 % of the transaction volume (81.0 % of the transactions). Although the domestic share declined compared to 2013 as a whole (81.8 %), it still increased by 6.3 percentage points compared to the previous year's quarter.

The average purchase price for portfolios fell by just over €50/sqm to €895/sqm compared to 2013. In contrast, project developments recorded a higher average price of €3,180 /sqm (+5.3 %).

What is the outlook for the future? NAI Apollo sees interest in portfolios remaining unabated. “The low rate of interest is one reason for this, as is the search for safe investments by both international and national buyers. Listed property companies will again dominate the buyers' market, particularly with regard to large transactions. Competition, which saw domestic investors emerging more frequently as winners than international investors in recent months, remains fierce", said Mergen.

“Of particular note is the recent increased interest in investments in secondary locations. The established cities still experience the strongest demand, but factors such as rising rental potential, higher yields and a less competitive landscape enhance the attractiveness of regional and middle-order centres outside the large metropolitan centres. The increased risk appetite of banks has turned locations such as these into a real alternative", said Kanzler.