Study on German Family Offices highlights real estate weighting

Real estate remains the most important asset class among German family offices' wealth, according to the second study produced on the subject by Famos, a 50-year-old family office consultancy and real estate investor based in Korchenbroich, outside Düsseldorf.

According to Hann Hünnscheid, Famos's CEO, "Family office are important players on the German real estate market. Nonetheless there is still a high degree of intransparency about their real motives, their portfolios, and the strategies they pursue."

The study, based upon the responses from 30 participating family offices, show that real estate remains the major component of family offices' wealth at 36% of total assets, unchanged from the last study in 2012. In that time shares have risen from 18% to 23%, although the proportion of yield from shareholdings has fallen from 24% to 18%.

Among property types, residential property has risen from 39% to 44%. Mixed residential and commercial has risen from 10% to 16%, while the big faller has been office properties, down from 29% to 18%.

Hünnscheid says that these changes are reflected in the investment intentions of participants. "Interest in residential property has risen yet again, with about two-thirds of respondents describing it as "attractive" or "very attractive". The same is true for mixed residential and commercial. We think this is because residential is still viewed as a relatively low-risk investment.

A majority of the family offices (66%) view the residential markets in Germany's A-cities as low-risk, compared to office and retail properties which are seen as much riskier. Office is viewed by 90% and retail by 83% as either "medium" or "high-risk".

Given the run up in German property prices over the last five years, the study shows that family offices are discounting future yields on their property investments. Hünnscheid says that "Yield expectations have been dramatically reduced, with more than 40% of respondents expecting net initial yields on residential property of between 0% and 3%. For mixed residential and commercial, 18% are expecting yields of between 0% and 3%.

Along with other categories of investors, family offices are being driven to invest in property by the low interest rate environment. More than two-thirds (71%) gave low interest rates while 61% gave excess liquidity as the main drive for their property investment intentions for the coming 24 months.

Where family offices differ from more institutional investors is in their goals and motivations. 90% of family offices gave protection against inflation and wealth maintenance as their principal goal, along with generating current cashflows (73%). Optimising their overall portfolio yield was given as a goal by only 50% of respondents, eighth overall on their list of investment priorities.

Despite this, the study could glean from many respondents that they put their actual average pre-tax return on capital at 5.78%. Not at all any worse than most other institutional players in the market, says Hünnscheid.