Housing investment market: Scarce produckt availability brakes investment momentum

  • Transaction volume at around € 2.3 billion in the first quarter of 2016

  • Berlin remains the focus of domestic and international investors, followed by major cities in Bavaria and Hesse

  • Property developments account for 25% of the transaction volume and act as a driver of average purchase prices

  • Public sector and open-ended real estate and special funds among the strongest net investors

  • Sustained high demand in a low interest rate environment and portfolios in the pipeline suggest a year-end result of approx. € 10 billion

The residential property segment continued to be a very popular investment objective in the German real estate market in the first quarter of 2016. According to a current analysis prepared by the commercial real estate services company CBRE, a transaction volume of approximately € 2.3 billion comprising residential portfolios and residential complexes of 50 units upwards was reported across Germany. The housing segment was therefore the second strongest asset class following on from office real estate in the first quarter of 2016.

Not taking into account the dominating special effect of the GAGFAH takeover worth eight billion euros by Deutsche Annington at the start of 2015, this year’s transaction volume has entered into decline compared with the year-earlier figure due to scarce product availability. The largest transactions included the takeover of the German Grainger platform by Heitmann accompanied by CBRE.

Dr. Jan Linsin, Head of Research
With only five transactions, each of which worth more than €100 million, with a combined transaction volume of € 832 million, the residential investment market proved to be very upbeat with numerous transactions in the range of between € 20 million and € 50 million.
Dr. Jan Linsin, Head of Research

New building developments drive up average purchase prices
Against the backdrop of a slight increase in the number of residential portfolio transactions, CBRE reports that 25,800 residential units in total changed hands. The purchase price per residential unit averaged € 89,000 (up 45% in a year-on-year comparison). Similarly, the purchase price per square metre also increased by 43% to € 1,430 compared with the year-earlier period.

Konstantin Lüttger, Head of Residential Investment
Boosted by sustained high demand and the ongoing shortage of existing portfolios, this trend is attributable in particular to the growing interest of international and above all domestic institutional investors in property developments.
Konstantin Lüttger, Head of Residential Investment

The allocated transaction volume in new construction development rose by 35% to € 574 million compared with the year-earlier figure, which means that property developments made up around one quarter of the overall investment volume in the first quarter. Measured by transaction volume, the regional focus in terms of property developments was mainly Berlin, alongside the Bavarian cities Munich and Nuremberg (around € 90 million) and Frankfurt in Hesse (around € 82 million). Of the € 500 million allocated to Berlin, almost two fifths were attributable to property developments.

Michael Schlatterer, Teamleiter Residential Valuation
Public-sector housing companies were particularly active in Berlin in increasing their housing stock in order to secure social housing, with the objective of implementing the Berlin Senate’s policies on expanding the portfolio. Due to the lack of product availability from existing portfolios, the public sector increasingly invested into new building projects.
Michael Schlatterer, Teamleiter Residential Valuation

Public sector and open-ended real estate and special funds among the strongest net purchasers
The public sector was reported as the strongest net purchaser group in the first three months, acquiring residential property worth € 471 million, while disposing of residential complexes amounting to only € 24 million. With an increase of € 226 million, open-ended real estate and special funds also belong to the group of the strongest net investors.

Measured in terms of absolute transaction volume, asset and fund managers constituted the strongest purchaser group with an investment volume of some € 506 million in the first quarter of 2016, thereby accounting for 22% of the overall residential investment volume. The public sector followed in second place having stepped up its activities and invested around € 332 million more than in the previous year’s period. Third place was taken by property companies with around € 307 million, representing a share of 13%. On the vendor side, alongside the traditionally strong listed property companies and REITs with € 630 million, developers above all proved to be very active. They sold property developments worth € 633 million, which corresponds to a share of 28%. “Along with strong and steady demand for multi-story housing, we see institutional investors showing greater interest in the asset classes of student accommodation and micro apartments”, comments Linsin. “Although still niche markets, these asset classes offer potential for further investment by institutional investors wishing to buy in to the changed residential infrastructure and demand patterns of young people.”

Transaction volume of € 10 billion anticipated for the full-year 2016
Demand for housing by the user community as well as by investors continues to run at an unabatedly high level. First and foremost, new construction activity in urban centres, which is too low, will ensure that rents and purchase prices remain at their currently high level despite the investment programmes planned by the German government. “With demand growing, especially in the lower price segment, we think prices are set to rise”, says Lüttger. The situation is not expected to ease here, particularly in view of the strong influx of people into these cities and regions. “Whether the investment story in the German residential investment market continues or not depends, however, on product availability that has meanwhile developed into a constraint”, explains Linsin. “Based solely on the portfolios already in our pipeline, we anticipate a transaction volume of approximately €10 billion in 2016 as a whole”, says Lüttger.

Housing portfolio transactions in Germany (upwards of 100 residential units) –Q1 2015 vs Q1 2016 comparison excluding the GAGFAH takeover

Source: CBRE Research, Q1 2016.

Market for residential portfolios in Germany

Source: CBRE Research, Q1 2016

Konstantin Lüttger
Head of Residential Investment Germany
+49 69 17 00 77 29

Michael Schlatterer
Team Leader Residential Valuation
+49 30 726 154 156

Dr. Jan Linsin
Head of Research Germany
+49 69 17 00 77 663



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