Study highlights untapped potential in German corporate real estate
Enormous potential is slumbering in the €3 trillion German corporate real estate sector, with about €178bn which could be freed up annually through optimising corporate real estate management, according to an important new study presented at a press briefing in Frankfurt this week.
The report, published by ZIA, the central lobbying organisation for the German real estate industry, and CoreNet Global, is the first comprehensive study on the economic significance of corporately-held real estate in Germany. Private companies BASF, Siemens and Berlin-based Eurocres were co-sponsors of the study.
The key findings of the study are that the value of corporate real estate in Germany amounted to €3 trillion in 2013, of which 70%, or €2.1 trillion, was owner-managed - a far higher percentage than that typical of Anglo-Saxon or Asian markets. After personnel costs, property represents the second-highest cost factor for companies, amounting to 10-20% of costs depending on industry and type of business. Through optimising these real estate management costs, there is big scope for improvement in staff productivity, conclude the researchers.
The report's author, Professor Dr. Andreas Pfnür, head of the faculty of real estate and construction at the prestigious Technical University of Darmstadt, says that "The strategic potential of a company's real estate in determining that company's competitive position is very often underestimated. Companies tie up a very high percentage of their capital in property. This makes it sometimes hard to understand why the role of corporate real estate often plays such a secondary role within companies themselves, on the capital markets, and in the political and public administrative sphere. A more pro-active approach to managing corporate real estate could unearth considerable potential for both companies and the economy as a whole."
About two-thirds of the property used by Germany's largest companies is owned by those companies, with the figure rising to three-quarters in the famed German Mittelstand. BY contrast, the figure in the USA is 30%, while in Asia it's 20%.
"The rate of ownership by German companies is very high on an international basis", says Pfnür. "This leads to a lot of potential in the real estate sector being left on the table, and simply isn't justifiable from a corporate finance point of view. Economically it would make sense to lower the rate of property ownership and at the same time to improve individual employee productivity. Appropriate corporate real estate management could boost labour productivity by 13% - taken together, we estimate that about €178bn could thus be freed up annually.
So, why isn't this happening right now? Professor Pfnür says this is partly to do with the weak capital market culture prevailing on the German commercial real estate market, compared to its American and Asian peers. Of Germany's €3 trillion in corporate real estate, only €46bn is held in closed-end funds and €37bn in open-ended funds. "In Germany, companies simply don't have the capital market partners to enable this reduction in their level of ownership", says Pfnür. The effectively stillborn REIT regime in Germany might at one stage have helped to address this, but any help from that quarter appears to be a distant dream now.
The study highlights how in only about a half of Germany's largest companies and about a third of the Mittelstand companies, any serious effort has been introduced to structure the corporate real estate management (CREM) function - leaving a lot of potential for increasing efficiency.