Foreign investors back in force in German real estate

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A recent report by Hanover-based mortgage bank Deutsche Hypo points to the extent to which foreign investors have returned in strength to directly investing into German real estate, following a period in which investing indirectly via the stock market was the preferred route.

The report shows that investment activity overall reached €59bn in 2012, comparable to the level of transactions in 2004, but well down on the boom years of 2006 and 2007 when it reached €110bn annually. The share held by foreign investors which fell to 8% with the financial crisis, has now bounced back to nearly 40%.

The report stated: "International investors, like private equity companies, are by far the most important stakeholders on the German real estate investment market followed by real estate Spezialfonds, insurers and Pensionskassen, real estate listed companies and REITs, open-ended real estate funds, real estate leasing funds as well as close-ended funds."

Deutsche Hypo board member Andreas Pohl said his group expects to see volumes this year to be on a par with last year’s, but he cautioned that “over the medium term an overheating of the market cannot be ruled out completely” as investors’ risk appetite is returning, while the supply of core real estate is fading but foreign investors still have an “overabundance of liquidity” to invest.

Meanwhile, survey respondents to the 64th monthly reading of the Deutsche Hypo Real Estate Economy Index (what used to be known as the King Sturge Index) indicated that they viewed the immediate outlook as ‘stable’, with the composite index holding firm at 123.3 points.

The Deutsche Hypo researchers commented, “The coming months will be characterised by a degree of uncertainty as to whether the economic instability of some euro-zone countries such as Italy, Greece and Cyprus dampen the German outlook long term, or whether the external environment ultimately finds a balance that supports an even higher growth momentum for German industry.”

Board member Pohl added that, “Maybe even the slight climate increase for residential property is directly related to the rate of inflation rising to an estimated 2.0% in 2014, while the improvement for commercial property was also probably sparked by forecasts for stronger economic growth of 1.9% in 2014.”