By Sabine Barthauer, Member of the Board of Managing Directors of Deutsche Hypo
Outlook for the German real estate market:
“Growth path has already lost momentum”
“Transaction volumes in Germany have never been as high as in the past year. But I think it would be bold to assume that means the boom in the commercial real estate market will continue much longer. Because the growth path has already lost momentum. Not everything is bought anymore, let alone financed. Price limits appear to have been reached in many locations. The new year started with plenty of tailwind, and the ongoing period of low interest rates and robust economy continue to offer good or very good conditions in our industry – the job market is booming, employment is increasing and real incomes are rising. However, geopolitical uncertainty continues to represent an underestimated risk – for all industries. The mood and conversations at MIPIM will surely be a good indicator of whether the commercial real estate market in Germany should hope for transaction volumes exceeding 50 billion again in 2019.”
Real estate cycle:
“Those with high-quality portfolios have nothing to fear”
“As soon as the real estate cycle is in a downturn, it will become clear which properties and projects are really sustainable. Because it is only when the framework conditions change that the market decides which properties meet the requirements for flexibility and digitisation capability and which location is in sustained demand. Those with high-quality portfolios do not have to fear the departure from the plateau.”
International investors:
“Germany remains highly attractive to international investors”
“Foreign investors continue to play an important role in the German commercial real estate market. While their share of transaction volumes experienced a slight year-on-year decrease in 2018 to 40 percent, the market’s fundamental importance has not changed: The German market is as attractive as ever to international investors – that is particularly clear in the case of lighthouse projects. But that’s not all. Our federal structures offer investors with a global perspective a broad range of opportunities in both the top seven metropolitan areas and up-and-coming ‘B’ cities.”
Project developments:
“Sought-after properties are being sold immediately after construction begins”
“Compared to the past years, institutional investors such as insurance companies and pension funds are currently buying premium properties much earlier – long before they are completed. Some sought-after properties are even being sold immediately after construction begins. Most project developments are currently in the asset classes office and residential, as demand remains high and vacancy rates are at historic lows in some areas. Project developments in all asset classes will also get a further boost from the large number of ageing properties that will require refurbishment soon in order to meet current user requirements.
MIPIM motto “Engaging the Future”:
“Mixed-use properties are on the rise”
“This year MIPIM will celebrate its 30th anniversary, and I am very pleased about its motto, ‘Engaging the Future’. It really reflects the current situation. One of the most challenging tasks our industry faces when shaping the future is the planning of cities and urban quarters. Mixed-use properties, which combine new ways of living, working, shopping and types of accommodation, are more popular than ever. Along with intelligent transport infrastructure, they are what make urban quarters attractive. To meet the needs of this unstoppable trend, all players in the real estate market must work together to produce sustainable concepts.”
Foreign markets:
United Kingdom:
“The uncertainty surrounding Brexit is poison for everyone”
“The fact that, two and a half years after the referendum, the conditions for Brexit still haven’t been decided is poison – for the global economy in general, for the EU and particularly for the United Kingdom. That uncertainty is tying up resources everywhere and is making market players in Germany increasingly cautious. That is not the case for Asian investors. They are making use of the opportunities offered by the weak pound and the slight increase in initial returns by investing in London. Despite all the discussion about Brexit, the overall state of the commercial real estate market in the United Kingdom is good. That is unlikely to change regardless of how Brexit eventually happens. This is because the United Kingdom will remain one of the world’s largest economies – and Europe’s most important real estate market.”
France:
“Office locations in the Greater Paris area are big winners”
“Following growth of 2.2 percent in the French economy in 2017, that momentum was not fully maintained last year: With growth of 1.7 percent in 2018, France’s economy is expanding at a similar rate to Germany’s. That means the conditions for investment in French commercial property continue to be good. The capital city, Paris, and the Île-de-France region continue to be the dominant market. There has been a further decrease in available space, so investors are increasingly moving into alternative market segments. The big winners as a result of that development are in Greater Paris, where a number of highly prestigious office locations have become established.
Netherlands:
“The Netherlands achieves impressive transaction volume”
“With a transaction volume of around 20 billion in 2018, the commercial real estate market in the Netherlands has again performed impressively, following positive development in recent years. Above all, the asset classes residential, logistics and office properties remain in high demand among domestic and foreign investors. While the increasingly clear shortage of high-quality properties in the Netherlands is successively reducing returns, there is simply no alternative to real estate investments in the current low-interest environment – both in the Netherlands and other core European markets.”
Poland:
“Polish premium properties a focus of international investors”
“The commercial real estate market in Poland developed dynamically in 2018. That is reflected by the increase in transaction volumes to more than 7 billion. Demand for Polish premium properties has grown further recently, particularly among international investors. Warsaw has become one of Europe’s 20 most important real estate locations. The transactions show that, on the one hand, the market for large shopping centres has also become somewhat saturated in Poland and, on the other, that the boom in the logistics market continues in the country. It is also noteworthy that office vacancies continue to decrease despite the marked increase in new construction in recent years.
Spain:
“The market for residential properties is growing”
“The Spanish economy continues to grow faster than those of other European countries. Falling unemployment is a further positive development in the country. Of course, the commercial real estate market is also benefiting from those conditions. In the two hotspots, Madrid and Barcelona, turnover of office space increased again in 2018. Vacancies have also decreased further. That positive development is attracting both domestic and foreign investors. The market for residential properties is developing particularly dynamically at the moment. Investors are, above all, focused on Madrid, Barcelona and Málaga.”