By Sabine Barthauer, Member of the Board of Managing Directors of Deutsche Hypo
Outlook:
“On a high plateau for a long time”
“We have been on a high plateau for a long time in the current cycle, and we keep hearing the same question over and over again: when will the cycle come to an end? In fact, gross domestic product decreased in the second quarter of 2019. In addition, the growth forecasts for Germany have recently been lowered. Trade conflicts and geopolitical uncertainties are having a negative effect on the global economy. However, these developments are not yet having much impact on the real estate market: the letting market generated a new record result, and momentum on the investment market continues to be high. In view of the continuously high demand, I do not anticipate any major distortions in our industry in the short term. Medium to long-term forecasts, on the other hand, are currently difficult to make.”
Sustainability / Green Finance
“There is a lack of uniform standards for green financial instruments”
“There has been a change in thinking in the real estate sector. Green financial instruments used to be exclusively niche products until recently, but are now enjoying increasing popularity. This is a great and important development, because the real estate sector has an impact on the physical design of many cities and can thereby create a further incentive to conserve resources and build in a sustainable, environmentally friendly way. What is still lacking are uniform standards and criteria for green financial instruments. This is important for all market players in order to create transparency and reliability. The European Commission’s action plan on sustainable finance is a key step in the right direction.”
Retail
“Retail parks withstand the trend for retail properties”
“The volume of retail property transactions stood at € 9.8 billion in 2018. This is an increase of 12 % compared with the figures over the last 10 years, but is a drop of 18 % compared with the previous year’s volume. Retail real estate is falling sharply even as the German real estate investment market continues to soar. This comes as no surprise: a profound structural change is taking place in the sector. Revenues are increasingly shifting towards e-commerce, which is why investors are extremely selective in their approach. Yet this does not apply to retail parks, which have in fact seen an increase in value recently. Food and daily essentials are still not being ordered online very often. Consumers still value and use regional local amenities for these needs.”
Office / New Work
“Spatial flexibility is becoming increasingly important for office properties”
“Office properties continue to be the most important asset class on the commercial real estate market. However, the completion rates are far from able to meet the high demand, which is why owners of older buildings do not yet feel any pressure because there are simply no other alternatives. This can all change quickly, however. Office property requirements have evolved tremendously. In the transition from an industrial society to a knowledge-based society, a structural change has also been taking place in the world of work in recent years, which is summarised under the term “New Work”. The rise in globalisation and digitalisation makes flexibility in terms of time, organisation and space all the more important. Work spaces must also adapt to this.”
City Logistics
“Innovative solutions for urban centres are in demand”
“The demand for logistics real estate is higher than ever. Due to the boom in online retail, this asset class is undergoing a profound change. Parcel volumes have seen a rapid increase in recent years, but inner-city transport systems are still not laid out for such use. Moreover, as a result of the increase in e-commerce, there is a need for additional premises for distribution. However, these cannot be readily made available in view of the shortage of space that, in any case, exists in urban centres. Innovative solutions are being sought here in order to be able to ensure “last-mile” delivery.”
Residential
“To demand expropriations is pure populism”
“Rents in Germany have risen rapidly in recent years. As a result, affordable places to live are in short supply, particularly in cities and large urban areas. This is a worrying development. Nevertheless, I am dismayed that this problem is being met with a populist debate around expropriations. It is a fatal mistake to believe that more living space is created when large housing companies have their properties expropriated. The reason for the housing shortage is simply that in urban areas, which are experiencing more and more inward migration, not enough construction has been and is being carried out. The current situation is caused by lengthy planning and approval procedures, very extensive building regulations by international standards and a construction industry working at its capacity limits. For example, the annual targets for the provision of affordable housing are far from being met. Calling for expropriations is pure populism. It is not the way to solve problems.”
Hotel
“In the hotel sector there is a trend towards consolidation”
“Competition on the German hotel market is huge. Operators of conventional hotels are particularly under pressure. What is needed are new, modern concepts that combine design, functionality, individuality and sustainability. Against this backdrop, we see a clear trend towards consolidation. Many large chains buy up smaller, modern hotels as a way of responding to the changing demands. It remains to be seen who can best serve the demands of guests and therefore survive on the market in the long term.”
United Kingdom:
“London is still Europe’s most important real estate market”
“The British economy – just like the real estate market – has so far shown itself to be surprisingly robust despite the Brexit negotiations that have now been going on for three years. In the first half of 2019, however, the total investment volume dropped by 31 % to € 23.4 billion. The political uncertainty naturally contributes to this development – South Korean investors in particular have increasingly turned to Paris as their investment location. The main driver, however, was restraint on the retail market, where investment volume has fallen by a full 50 %. However, demand for the other asset classes remains high, meaning London is still the most important real estate market in Europe.”
France:
“Foreign capital ensures investment high”
“In particular, the influx of foreign capital – increasingly from South Korea, among others – led to a renewed investment high on the French real estate market. A volume of € 14 billion in the second half of the year helped it reach last year’s record level again. In addition, Paris is the city with the most forward deals in all of Europe. Property is and remains extremely popular – not least because of a lack of alternative investments. All asset classes are thereby in demand, with one exception: retail. Investment volume here has fallen significantly by 27 %, compared to the previous year.”
The Netherlands:
“Prices are topping out”
“In the Netherlands, the economic boom continues unabated. The demand for office real estate in particular is enormously high and exceeds supply many times over. This is resulting in clear price hikes and limits investment volume. We might think that prices are topping out, but perhaps there is still room for improvement in the current real estate cycle. Residential properties are also in high demand in the Netherlands. In particular, we see an increasing tendency to blur the boundaries between the student housing market and the regular housing market.”
Poland:
“Expansion continues with few limitations”
“Positive economic development can be expected in Poland this year and the next, albeit at a somewhat more moderate rate. As a result, the Polish real estate market will be able to continue expanding with few limitations while further increasing its appeal. Only weaker international trade or an increase in concerns regarding the independence of Poland’s justice system could have a negative impact on economic development.”
Spain:
“Development is promising”
“The investment volume on the Spanish real estate market increased by 39 % in the first half of 2019. This is remarkable when compared with Europe as a whole, although we need to remember that the level is lower than in Germany, the United Kingdom or France, for example. Yet the development is promising. Demand for office and residential properties in particular is very high. There is considerable liquidity on the market, and current interest rate policy is making real estate an extremely attractive asset class for investors – and not just in Spain.”