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A recently-produced EY Real Estate survey provides a comprehensive snapshot of the current mood and strategic directions among Germany's property fund, investment, and asset managers. This survey, conducted among 37 top executives, aimed to gauge the sector's pulse amid ongoing economic and geopolitical volatility.
The findings show a cautiously optimistic outlook, with 69% of respondents planning to buy properties and 68% intending to sell before the year's end. Only 22% are waiting until 2025 to resume transactions. This increase in activity is partly due to a slight rise in optimism, as the perceived burdens from transaction rigidity, reorganisation pressure, and inflation have eased compared to the previous year.
Office Vacancies Expected to Rise Further
Office properties remain a focal point, representing the largest segment managed by 78% of the respondents, followed by retail (51%) and residential (41%). However, managing these assets profitably is increasingly problematic. Nearly 89% of managers are exploring conversion concepts for office spaces, while 76% are offering higher incentives to attract tenants. Despite these efforts, 65% expect vacancy rates to rise. This pressure is driving managers to consider alternative asset classes, with 35% expressing interest in life sciences.
The relationship with property managers is a thorny issue. According to Christina Angermeier, co-author of the EY study, "There is widespread dissatisfaction with property management." Currently, 46% of asset managers provide property management in-house, and an additional 14% plan to do so. Only 64% are satisfied with the quality of technical management, and 47% with commercial management. The fee structure is a significant issue, with 41% finding it disproportionate to the services provided. It seems that property managers are becoming the "in-laws" of the asset management world—necessary but often frustrating.
ESG issues remain a major concern for 95% of asset managers, who are focused on implementing ESG measures. Green lease clauses, which require tenants to adhere to sustainability standards, are becoming standard, with around two-thirds of respondents indicating their use. However, only 60% have the necessary data to calculate CO2 emissions across their portfolios, although this is an improvement from the previous year. "Energy-inefficient space is more difficult to let," noted 81% of the asset managers.
Slow Adoption of AI in Risk Assessment and Cost Reduction
Of course, Artificial Intelligence (AI) is also seen as a potential tool for enhancing asset management, with 70% acknowledging its value in identifying investment opportunities and assessing risks. However, its adoption has been slow, with 62% of managers still relying on Excel for some operations. The industry remains divided on AI's potential to significantly reduce asset management costs. AI seems to be the shiny new toy that everyone wants but no one knows how to play with yet.
Staffing remains a critical issue, with 38% of asset managers reallocating personnel to adapt to the new environment, and only 25% hiring new staff. Staff cuts were reported by 14% of respondents. There is a rising demand for generalists over specialists, with 86% of managers prioritising versatile skill sets.
The relationship between asset and property management is undergoing significant scrutiny. As Angermeier pointed out, "The sector seems to be considering bringing this service back in-house rather than changing property managers." No asset manager intends to outsource their property management, reflecting a desire for greater control and improved service quality.
Emergence of Life Sciences and 'Quartiersentwicklungen'
Life sciences and neighbourhood developments are emerging as new investment avenues. Over a third of asset managers are keen on life science properties, and 22% are considering neighbourhood projects. This shift indicates the industry's need to diversify and find stable, long-term investment opportunities outside traditional asset classes. "The change from a former investor favourite to today's problem child is not causing the sector to despair," Angermeier added, highlighting the industry's resilience and adaptability.
The EY survey shines a spotlight on a sector in flux, grappling with ESG pressures, evolving tenant demands, and technological advancements. The move towards insourcing property management, cautious optimism for market transactions, and exploration of new asset classes like life sciences do, however, emphasise the industry's adaptability and commitment to sustainability, conclude the surveyors.
