As is usual at the beginning of July, data is flowing in from all the various brokers and other researchers out there, giving us a picture of what's been happening in the last quarter and for the first half year as a whole. The figures show clearly how investors have significantly reduced their involvement with the residential sector, with a much-lowered appetite for risk over the last quarter.
Overall, transaction volume in German residential fell by more than a third (down 36%) to about €3bn in Q2, compared to the same quarter last year, according to JLL's figures. Turnover for the first six months, at about €7bn, is likewise down 32% over the same period last year. Notable is where investors have been putting their money, avoiding the riskier segments. Deals in the ultra-safe core-plus segment made up about 80% of all volume - well above its five-year average of 39%.
JLL's Head of Residential, Michael Bender, said: "The residential markets are caught between inflation, the interest rate turnaround, increases in construction costs, the need for new construction in the real economy and climate policy goals. In this phase characterised by uncertainty, some players are being cautious and postponing their investment decisions."
The visible lack of portfolios in the transaction volume is significant. CBRE puts the portfolio ratio in the first half of 2022 at only 58%, down from its five-year average of 70%. CBRE sees the direct cause of the shrunken transaction volume as being the war in Ukraine, which has led to disrupted supply chains leading to bottlenecks on building sites, as well as high inflation rates at the consumer level, and the drastically increased financing burden for potential investors.
CBRE sees prime yields for residential rising in the face of the interest rate turnaround, but with average yields for existing and new-build remaining stable.
This is in contrast to BNP Paribas Real Estate, which sees a reversal in trends. Christoph Meszelinsky, head of residential investment at the broker, says we are in 'price-finding phase# for the time being, with net prime yields for new-build properties rising in the first half for the first time since the financial crisis.
Dr. Marcel Crommen, managing director of NAI Apollo, said that caution and restraint on the part of investors had risen significantly, which was not yet fully reflected in the figures for the first half. They put turnover figures for the half at €7.2bn, down more than 25% compared to their five-year average (not so different from the mean figure of the other principal broker groups).
NAI Apollo sees the supply of distressed sales rising over the coming months, along with larger portfolio sales. They're expecting full-year figures of below €15bn, well down on the five-year average of about €25bn.
Savills, in its half-year report, points out the attraction of buying new-build residential, in that its leases are more likely to be protected by indexation clauses, a feature not normally built in to portfolios of existing properties, and something which can normally only be introduced gradually. This would partially explain why transaction volume in developments exceeded that of existing buildings for the first time, at about 51% of the Q2 volume. Forward deals made up 43% of the volume they analysed, well above the 23% that was average for the past five years. Savills, likewise, sees annual volume coming in at below €15bn. Quieter times ahead, then.
