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Newsletter Posts / Contributions

Moritz Kraneis, Managing Director, Deutsche Zinshaus Gesellschaft mbH

A potential transaction volume of €100 billion in Germany – this confident, but by no means far-fetched, forecast made brokerage houses sit up and take notice in early October 2021. The remarkable results posted on the German investment markets are largely attributable to the residential segment. According to CBRE, residential real estate has established itself as the strongest asset class, chalking up almost €21 billion of transactions in the third quarter of 2021. And this impressive total is by no means solely a result of the large-scale portfolio sales that have dominated recent media coverage. No, it is an outcome that owes much to the fact that investors with a high proportion of commercial space in their portfolios have been prioritising diversification.

However, while in the office segment it is primarily Grade-A properties in prime locations that have proven their stability, this is by no means the case in the residential sector. In particular, the inner cities of Germany’s largest cities are exhibiting signs of overheating and yields in the core segment have fallen to an all-time low of 2.24 per cent. In peripheral districts, in contrast, both absolute purchase prices and rental prices – measured against household income – are still relatively low. In addition, for some years now there has been a migratory trend from the urban core to the suburbs and exurbs, and rural communities on the edges of major cities have benefited the most.

However, this creates a fundamental problem. International investors are still drawn to real estate assets in Germany because of the high level of security they offer. An investor from the Asia-Pacific region or the United States who is looking for a “safe haven” in the German residential market is more likely to find an attractive investment opportunity in an exurban location such as Hanau and Hattersheim than in Frankfurt’s Westend. Why? Because such locations exhibit constantly positive market dynamics (without overheating tendencies) and, consequently, a much better overall performance. However, many investors are not even aware of these market opportunities – or that these cities even exist. As a result, most institutional investors, who according to Savills now account for 49 per cent of the investment market, continue to allocate much of their capital to the supposedly safe Top 7 cities.

Then there is a possible perception bias: In terms of ESG in the residential segment, the focus is all too often on forward deals for new properties built to the highest energy efficiency standards. However, modernising and upgrading the millions of properties in Germany’s existing building stock is an equally important lever as we strive for a major positive impact on the environment and climate. Thus, if investors align their investment strategies appropriately, they can also achieve their ESG targets via investments in the existing property segment.

My conclusion: The real estate industry needs to do more to establish better networks and explain the benefits of its products, especially in the residential sector. In particular, markets in regional centres have so far been largely ignored by institutional investors – and conversely, many local players do not have adequate connections to international investment and asset managers. As a result, fund solutions will come to dominate for years to come, bundling properties into portfolios. However, it also remains to be seen whether direct ownership will increase in the long term, and whether, a few years from now, property viewings will kick off with the words: “Ladies and Gentlemen, welcome to Hattersheim.” For investors who have specialised in these markets for years, the positives would be tangible.

Attractive historic building in Berlin-Kreuzberg
Real Estate Offerings
Price: EUR 3,448,000 plus 7.14% commission (incl. VAT) Lettable space: 1,026 sqm Net annual rent (current): EUR 144,000Read More...
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5. March 2024
Subdivided corner building close to Tempelhofer Feld
Real Estate Offerings
Price: EUR 5,400,000 plus 7.14% commission (incl. VAT) Lettable space: 1,835 sqm Net annual rent (current): EUR 287,821 Price-to-rent ratio: 18.7Read More...
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5. March 2024
Subdivided historic building in Berlin-Wedding
Real Estate Offerings
Price: EUR 4,800,000 plus 7.14% commission (incl. VAT) Lettable space: 1,550 sqm Net annual rent (current): EUR 167,000Read More...
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5. March 2024