Germany: The new safe haven for investors in Europe?

 —  Article by Natalie Holmes
City view of Cologne in Germany
Image credit: Shutterstock

Not so long ago, the German real estate market was considered ‘boring’, thanks to measured growth alongside accurate scrutiny and sound financing.

But in the wake of heightened political and economic uncertainty across parts of Europe and beyond, the twin draws of stability and transparency are increasingly winning over investors. So much so, in fact, that Germany is being spoken of as the new safe haven of choice for investors in Europe.

“A solid political framework and strong economy certainly contribute to German real estate’s growing reputation as a safe haven,” says Timo Tschammler, CEO of JLL Germany. “These are still the hallmarks of the German market, and ultimately they belong together.”

But this is not a new development: the country has enjoyed a relative lack of both social inequality and economic volatility for a number of years. Indeed, what is new is the recent rise of populism in politics and unexpected decisions, like Brexit, which raise huge questions and reveal the fragility of global structures.

“Against this backdrop, it’s not surprising that Germany is increasingly perceived as a lighthouse in a sea of uncertainties,” says Tschammler.

Funds flow into Germany

As perceptions of the German real estate market change, investment is flowing in. The country’s real estate market recorded a transaction volume of 12.6 billion euros in the first quarter of 2017—its strongest first quarter on record—with logistics and residential taking up an ever-increasing share of portfolios, according to JLL’s Capital Flows Report.

At the end of last year, private-equity group Blackstone purchased OfficeFirst, which owns around 100 properties across several German cities, for 3.3 billion euros. In March 2017, Coca Cola’s German headquarters in Berlin was acquired by Rockspring Investments for just over €59 million.

Germany’s real estate market is also evolving organically. In 2017, Germany’s office properties became more expensive than high street retail real estate for the first time. At the same time, logistics real estate has established itself, with yields now around the five percent mark. Residential rents are also on the rise, especially in Berlin, which has become an investment hotspot.

No change on the horizon

It’s not only current events that give investors confidence when it comes to putting their money into Germany. “Future prospects are also extremely stable, and that’s what sets us apart from other major European real estate markets,” says Tschammler. In the UK, for example, confidence fell even before the Brexit vote. In 2015, British transaction volumes were 80 percent higher than in Germany. The following year this surplus fell to just five percent.

With this boom comes risk of a bubble. The most unpredictable elements, however, are arguably external, including the European Central Bank’s announcements on monetary policy, disturbances from markets such as the US, UK and France, as well as upcoming national elections in Germany.

Tschammler acknowledges that in residential markets, overheating property prices present a potential obstacle, especially established cities like Munich.

But there are plenty of reasons to remain optimistic. “As long as there are interested buyers and favorable interest rates, the price spiral will continue,” he concludes. “There’s no end in sight.”

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