All we’ve had over the last weeks and months are gloomy predictions from representatives of the retail industry about how badly the industry was suffering. And now this update from Germany’s Federal Statistics Office – we’ve had the highest sales growth of the past decade!
Their figures show retail sales growing by a good 5% in nominal terms and by just under 4% in price-adjusted terms compared with the previous year.
So, what’s going on? Individuals’ high propensity to save and the lockdown consequences of the pandemic have indeed had a negative impact on consumer spending. However, the retail sector has been able to benefit from the state’s countermeasures (primarily, the government’s economic stimulus package with the child bonus and the temporary reduction in VAT) as well as lower spending in other areas such as eating out. As a result, retail sales growth has been the highest since 2010, although not without inevitable side-effects.
The clear winner is e-commerce, which has benefited particularly from the lockdown and seen a surge in sales growth. Increased consumer expenditure has given e-commerce and mail order businesses a boost of almost 25% - more than twice as much as in previous years. Despite the strong growth in e-commerce, however, over-the-counter retail sales also increased, showing growth of 2.4%. Adjusted for price, this still represented an increase of 0.8%.
Within retail, however, performance varied widely across individual segments. Clearly on the winning side was the grocery trade and supermarket retailing, each of which saw sales growth of a good 8%. Retail sales in DIY stores also benefited during the COVID-19 crisis.
Parts of the retail industry have seen clear losers and the emergence of definite problems, which the pandemic has only served to highlight in clearer detail. Consumers spent a lot less on clothing and textiles, for example, which saw the sector fall by more than 20%. This is just the culmination of a multi-year phase of structural sales declines, which has been exerting a fundamental impact on the decline of city centres, which are still home to a large number of clothing stores.
In the more mixed retail segment, including that of department stores, sales were down 10%, reflective of the long-term downward trend in that troubled asset category. The pain was felt even more acutely as the decline was accompanied by the widescale closure of numerous departure stores nationwide.
Taken as a whole, the retail sector has seen much less dramatic underperformance in terms of sales growth. Where it has performed badly, the pandemic has merely exacerbated problems within the industry which have been festering for several years.
Healthcare real estate delivers record revenue despite pandemic
The positive trend in healthcare property revenue continues unabated according to market figures for 2020 published by BNP Paribas Real Estate. The asset class generated almost €4 billion in revenue, 68% more than in 2019, and looks set to become increasingly sustainable.
The dynamic development in healthcare property investments during the first year of the pandemic reveals that investors are increasingly recognising the sustainability of this asset class. Remarkably, the ten-year revenue average was exceeded by around 130% in 2020. According to Georg Ritgen, Director of National Healthcare Services at BNP Paribas Real Estate Germany, one reason for this is that demand for healthcare properties is less affected by market fluctuations. This increases their rental security and makes them particularly attractive in today’s difficult macroeconomic environment. Ritgen also suggests that dependence on healthcare operators is becoming less of an issue due to their increasing professionalisation, which is decreasing the risk of default.
More portfolio transactions and increasing investment in assisted living facilities
Portfolio transactions made a strong contribution to this positive development, as they increased by around 140% to almost €3.09 billion. Yet revenue from individual properties dropped by around 18% compared to 2019. “Nevertheless, it is the second-best single deal volume ever recorded,” explains Ritgen.
Care properties accounted for a record-breaking two-thirds of healthcare real estate revenue (€2.7 billion), while properties such as doctors’ practices, hospitals, and medical centres more than doubled to €842 million. Particularly noteworthy is the 120% increase in the investment volume in assisted living properties. According to the BNP analysis, this is due to society’s changing attitudes towards old age living arrangements and a shift towards facilities that offer both assisted living and nursing homes.
Project developments are on the rise—nearly half of all sales topped the €100 million mark
Project developments contributed 24% to the overall result and in absolute terms represented by far the highest investment volume. Still, finding suitable sites often posed a problem as developers are increasingly competing with regular residential developments. Portfolio deals with a value of over €100 million accounted for almost half of the transaction volume.
Three groups of investors account for the bulk of the revenue: special funds (43%), investment managers (18%) and corporates (11%). Foreign investors are investing more than ever in German healthcare properties, although their share has fallen by around ten percentage points compared to the two previous years and is currently 46%. This reduction was primarily driven by interest from German buyers, who are discovering the attractiveness of healthcare properties as an asset class.
Rates of return are clearly declining
High demand for healthcare properties coupled with limited supply is reflected in the price trend. At the end of 2020, the net prime yield for high-quality, modern care properties was only 4.00%. It fell by 90 basis points in the last three years alone and this decline is likely to continue in 2021.
Despite this figure and the challenges posed by the pandemic, the significant increase in investment revenue indicates sustainable growth in healthcare real estate. According to Georg Ritgen, medium- and long-term growth is expected to continue over the next few years thanks to demographic trends, the rising average age and growing social acceptance for different types of old age housing. “Sales in 2021 are more likely to be determined by the existing supply, as investor demand will most likely continue to rise," Ritgen explains.
FAP nearly doubles revenues as bank caution increases
FAP Group, the independent Berlin-based advisory company for real estate capital-raising and structuring, said it had a record year in 2020, with revenues increasing by 92% over 2019, despite the onset of the COVID-19 pandemic.
Over the year, the group concluded 26 projects and structured capital for properties worth over €1.03bn, up from €801m the previous year. Foremost among its refinancings was a residential portfolio located across several mid-sized German cities, with a financing volume of about €230m.
The group’s “FAP Balanced Real Estate Financing I” debt fund, launched at the end of 2018, has distributed a volume of over €65m over the past several months. The fund allocates subordinated capital to existing properties, revitalization projects and developments in Germany.
Among the projects financed by the FAP debt fund is a revitalisation on Düsseldorf’s Königsallee, the development of a plot in Frankfurt, and maximising financing for the acquisition of a residential asset in central Berlin, close to the KaDeWe department store. The largest ever fund commitment, in the high double-digit millions, was also made last year by a German insurer.
According to Curth-C. Flatow, founder and managing partner of the FAP Group, “The year 2020 was the most successful one in our history so far. Banks have become increasingly cautious in financing property developments during the COVID-19 pandemic, and this is where we are filling the gap. At the same time, structuring of classic first-tier financing is also getting more complex; the need for professional advisory is rising.”
Flatow added that he’s expecting even further growth in 2021. “We are experiencing extremely high demand both from financiers as well as credit seekers. Our target this year is to increase assets under management to around €500m.”
Hanno Kowalski, managing partner of FAP Invest, which manages the FAP debt fund, said: “Our fund strategy is gaining significant traction in the current market environment, resulting in its successful closure over the coming months. A successor fund is already in the starting blocks.”
With its two main business lines FAP Finance and FAP Invest, the company brings together investors and those seeking capital, structuring both classic debt financing on real estate deals, as well as sourcing mezzanine capital all the way up to senior, bridge and whole loans. Since its founding in 2005, the group had advised and structured more than €16bn of capital.
