Faith in German bricks and mortar, as the tide of revolution recedes

As Gary Lineker famously commented, “Football is a simple game. Twenty-two men chase a ball for 90 minutes and at  the end, the Germans always win.” Nowadays, in the shadow of Brexit, the world of real estate is beginning to feel a little bit like that.

Towards the end of last year, Germany overtook the UK for the first time as Europe’s leading commercial property market, wooing global capital by offering a combination of stability and visibility to investors. Germany has long been Europe’s most powerful economy, but the process of translating that into also becoming the continent’s leading real estate market can be dated back to about 2005, just before the rest of the world decided to jump off the edge of a cliff.

Since those pre-crisis days, the German real estate industry has undergone a transformation, which we at REFIRE have been fortunate to accompany at close quarters over the past twelve years. While comparisons with Anglo-Saxon levels of market transparency are still misplaced, there is no doubt that levels of professionalism, reporting, market research and general accessibility have improved in Germany beyond measure.

The breadth and depth of the German market, with its Big 7 cities and a host of mid-sized metropolitan areas with a sophisticated infrastructure, offer myriad new attractions to investors that trust themselves to look beyond Europe’s traditional hotspots of London and the UK, and to a much lesser extent, Paris.

This year’s first quarter has seen German commercial property transactions rise by 33% over last year, and surpassing even that of the boomiest of years, 2007. Nine German cities now rank in Europe’s top 20 investment destinations, with Berlin and Munich both pushing Paris into fourth place from its traditional runner-up position to London. Both Britain and France have suffered noticeably from a fall in investment due to political uncertainty – and Germany has been a clear beneficiary.

Domestic UK investors are now struggling to compete with Asian capital for prime British assets, while several big German funds who kept their powder dry in the run-up to the Brexit vote are able to dip back into the London market on more favourable terms. If the far-right revolution in Europe has been quelled for now, and the immediate threat of a collapse of the euro has been averted, Europe’s periphery markets could experience a healthy upswing – led by the suddenly fashionable Spanish market, after taking years of battering.

That’s good for the rest of Europe. But still, even Germany’s own looming election in September is doing nothing to scare away the punters. If anything, quite the opposite. The recent decline in support for the Alternative für Deutschland party, and the ousting of the party’s charismatic leader Frauke Petry as chancellor-candidate to challenge the big established parties in September, along with the coronation of Macron in France, all suggest that the threat of potential Armageddon is receding - for now. Next time it might be a different matter.

Let’s hope it’s not sooner than that. Ri Chun-hee may not be a household name in the west, but in North Korea she’s the lady that the country’s leader Kim Jong-Un wheels out to assure his fellow countrymen and women that nobody messes with Kim Jong-Un. The 69-year old veteran newsreader Ri Chun-hee, dressed invariably in her trademark pink and black chima jeogori – the country’s national dress – gets frequently dragged out of retirement to announce the latest achievements to her captive national TV audience. She’s the only one whom Kim Jong-Un trusts to really get the message across to his people. Recently she’s been working a lot of overtime.

Her efforts are not to be scoffed at – although, if the matter were not so serious, it would be hard to suppress a giggle at her dramatic presentation and dedication to the revolutionary cause. Megan Walters, the head of research for Asia/Pacific at JLL, told us at the recent INREV annual conference in Berlin that a moment of madness from North Korea was one potential black swan that cannot be ignored. With Trump calling the entire US senate to the White House for a briefing on North Korea, who knows which megalomaniac could be the first to blink?

At the same event, Jürgen Stark, former board member of the European Central Bank and vice-president of the Bundesbank, told us that the ECB is still a long way from discontinuing its expansionary monetary policies and moving towards normalisation – as defined by when central banks and interest rates are back to where they should be. He expects no imminent change in the ECB’s stance – and how could there be, he asked, when we have no historic experience of this, while the rule book for a return to normalisation doesn’t exist?

In particular, Stark in his address singled out Italy as the real weak spot on the post-Brexit European landscape, which he described as “seemingly ungovernable, without the real will for reforms and no political incentive to work in this direction.” Only because of ongoing ECB intervention is the current situation sustainable, he said, but he didn’t know whether other countries have the political strength or the will to support it in the future. Nobody has an answer to this, he concluded.

The INREV Conference was notable for its extremely high attendance, doubtless due to the palpable level of interest in Brexit-related themes, for which there was no shortage of noteworthy contributions. Those anticipating reports of other cities beginning to reap the benefits of any London exodus were disappointed, however.

An excellent analysis by Peter Leyburn, EMEA Director of Client Services at Colliers International in London, provided a sobering reality check for potential beneficiaries. A dribble of jobs to Dublin and Frankfurt is the most that can be discerned so far, but no single city could accommodate whatever jobs do end up migrating, he said. Hopefully, he comforted delegates, there might be one - or a few - for everybody in the audience.