German investors bucking the trend towards lower risk appetite

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Sentiment among international commercial property towards high-risk real estate investment strategies has dramatically fallen over the past 12 months, according to online investment platform BrickVest’s latest commercial property investment barometer. German investors – against the trend - are the only significant group showing an increased appetite for risk this year, as against last year.

The quarterly barometer tracks investor sentiment, risk appetite and favoured investment locations among the platform's more than 4,000 investor members. Last year Berlin Hyp, the main real estate lender of Germany's Sparkasse group, took a minority stake in Brickvest in the proptech's €7m Series A funding round.

The latest survey shows a 24% year-on-year decline in sentiment from Q1 2017 to Q1 2018 towards high-risk property investment strategies such as opportunistic and speculative development. Appetite for low and moderate risk strategies including core and core-plus has risen by 16% and 5% respectively. During the same period, investors’ projected allocation to real estate over the next 12 months has remained at 3.3% of total assets under management.

While capital growth and income remain the two leading investment objectives, support for liquidity has surged by 40% over the past year, suggesting that investors are increasingly focused on easier divestment should the market cycle begin to turn.

The Barometer shows that investors’ overall risk appetite has fallen by an average of 10% with favourability towards Secondary assets dropping by 9% and Prime rising by 6%.

The UK retains its top spot as Europe’s most popular commercial property market (31%) ahead of Germany (23%) and France (18%) despite slow progress on Brexit and lack of clear direction on the terms of the eventual split.

However, the findings suggest that UK investors have on average become more risk averse than in other markets; their appetite towards high-risk investment strategies has dropped by 33% (24% average); the importance of liquidity has risen by 55% (40%) and support for secondary assets has fallen by 12% (9%).

Explaining the apparent increase in German risk appetite, BrickVest's Thomas Schneider said, "In Germany the heightened demand of the last few years driven by the high level of capital inflows has seen initial yields being driven ever further downwards. This is particularly prevalent in the core segment, which could be an explanation for the increased diversification of German investors into sectors with high opportunity-to-risk profiles".

These perceived opportunities are now often viewed as being outside Germany by German investors, he added. "Germany is potentially a loser despite its perceived function as a safe haven in an uncertain environment."

Emmanuel Lumineau, CEO at BrickVest, commented: “Commercial real estate markets are attracting record levels of capital but the Barometer strongly indicates that investors are becoming more attracted to lower risk strategies. At this late stage in the cycle it’s likely that many investors will be looking to trim their exposure to higher risk assets and liquidity will become increasingly attractive, so they can be better protected should the market start to turn. Whether more investors will join the flight to safety will be a key trend to watch over 2018.”