Where to go to get your 5% in Germany

REFIRE recently attended a lively evening of debate and discussion as to where the real estate investor should be looking in Germany to get his traditional target of 5% return. The occasion involved presenting an analysis of the market carried out by research group BulwienGesa on behalf of property investor Aurelis Real Estate. Commerz Real and Waterway Investment GmbH were also on panel duty to weigh in with their views, along with lawyers Beiten Burkhard in whose Frankfurt offices the well-attended gathering took place.

In a nutshell, the BulwienGesa study concluded the following:

For large amounts of capital seeking core investments, the office sector in Germany's A-cities should offer an IRR of only about 2.3% to 4.6%. The IRR on residential is between 2.88% and 3.3%, the lowest of all asset classes analysed. Shopping centres in the biggest cities will return 3.1% to 3.8%.

Smaller markets are curently showing heightened liquidity at the moment, and would be most likely negatively affected if investment dmeand were to slow down again. Properties here also tend to be smaller in size. However, they have more upside potential - The prime segments of office markets in Class C and D cities report returns of up to 6.0 % and 7.3 %, respectively. The segment of Unternehmensimmobilien (UI), or corporate or industrial real estate, delivers stable returns upward of 5 % across a range of 5.1 % to 7.5 %.

For non-core, the prospects of 5%-plus improve rapidly. The expectation for non-core office real estate ranges from 4.6% to 9.8%, although there is a risk of ending up with a negative IRR. Hotels are offering good returns, with up to 7.6% being achieved for properties coming to the end of current lease arrangements.

In logistics, modern logistics properties outside the established logistics regions are yielding 5.5% to 7.7%.

The best returns are currently in the new class of light-industrial or Unternehmensimmobilien, with return expectations for business parks, with their mix of office and warehouse/service areas running at 6.9% to 11%, while light-manufacturing properties can offer yields ranging from 7.5% to 11.2%. Up there with light manufacturing, for the hardiest of opportunistic investors, are office properties in C- and D-cities which return 6.1% to 12%. But here you really need to know your local market well.