Over the last twenty years, the ranking of real estate investments according to volume has always been led by the UK, i.e. Great Britain, and right at the top of the list, London in particular. It has been followed by France (Paris/Île-de-France), the Netherlands (Randstadt) and Germany. Since the days of the financial crisis, however, the ranking has changed markedly, with Germany having occupied second place for eight years now, if one compares the year-end totals and sees how much foreign capital has flowed into Germany.
Germany represents stability in the investment sector
This is due no doubt on the one hand to Germany’s distinctly positive economic development and, on the other, to the altered risk attitudes of investors following the Lehmann disaster (“Germany – the solid rock in Europe”). But there is also another aspect that has always distinguished Germany as its structural advantage – its polycentrality. A glance at the map suffices to see that there are simply significantly more investment locations in Germany than in the rest of the continent. Simply put, the number of investment locations for international capital – which traditionally meant Frankfurt – has been increased significantly through the addition of Berlin, Munich, Hamburg and Düsseldorf. To these have been added, since no later than 2015, about twenty so-called “B-locations” that round off this diversified picture. And this trend toward “more investments in Germany” has been continued for about the last three years by Asian capital, which has flowed to us not via London, but directly. Especially in the case of Berlin, this development seems to be ongoing, as the city on the Havel, Spree and Panke Rivers is classified as strongly undervalued.
The word “undervalued” may seem somewhat irritating from a national real-estate perspective, but arguing structurally and strictly rationally, an analysis of the numbers must lead to this conclusion. This is because the sustained, strongly positive economic situation obscures our view of one aspect of the development which we have rarely experienced so clearly: hardly any new projects were initiated. As is generally known, increasing scarcity and mounting demand prompt prices to rise, yet there have been relatively few pure office developments here, compared to the rest of Europe. The demand exists, but financiers and investors are still hesitant to venture into what has been branded ‘cyclical office developments’ in a highly positive market environment.
Investors favor “mixed use” buildings, combining offices and retail or housing
Yet the market situation is also changing increasingly in new construction and even more so in the refurbishment segment: co-working models, altered social expectations regarding office work, digitalization and pay-per-use concepts will presumably bring about more rapid, rather than slow change in the demands placed on office concepts in the coming years. Only a few aspects of these new demands can yet be discerned, but current readings already provide a good basis for drawing conclusions regarding the future. Also, international investors are driving development here more strongly than many local developers would like. It seems almost as if the capital market has already anticipated this development. The majority of major project developments are almost exclusively so-called mixed-use objects, i.e. a “yes” to office use, but only in conjunction with retail and/or residential use.
We are witnessing a historic juncture: more capital is flowing into Germany’s real estate markets than ever before, but it is linked with expectations which in this rather semi-transparent investment setting have always involved a delay. But those days are past. If Germany wants to solidify its place in the ranking and at some point top the list, we should allow “more international know-how”. Because our competitors are not sleeping.
European investment trends at EXPO REAL 2018
The property sector in Europe is constantly changing. Come to EXPO REAL 2018 and learn which locations are up and coming & how property trends develop. Have a look at our top class conference program and find leading European property companies in this year’s exhibitors list.