What have we done! 5 Years in Germany and looking forward.
It is about this time of the rear that we look to each of our markets and take stock, make some predictions on the markets and as a result re-position what we are doing in the ProVenture team and where we are doing it.
This year has a bit of added significance as it is our 5th year of operation, which seems hard to believe, as it still feels like we are just starting out and we still are full of the “joys of spring”.
But a few new grey hairs, and a new pair of golfing slacks proudly hanging in my dresser tell us that time has not stood still. Anyhow, I thought I would use this article to take stock of operations, and where we are heading. Hopefully this will be useful to investors, both those who have already worked with us, or those looking to take some positions in the near future. So here goes, for a trip down memory lane and to perhaps dispel a few myths, like the one that German property just goes up slow and steady each year….
Find out where 200% – 300% price increases have occurred and where we think it’s going to happen again – here
Under Pressure
Rent pressure
Renting and investment risks in German property will remain low over the coming years in the larger cities as they profit from robust economic development, high employment and rising income, says North German landesbank HSH Nordbank. It predicts investment and leasing risk to rise again slightly in the long-term but reaching only a stable mid-range level. In a recent study of 14 German cities, it found that demand was driven by more and more people moving into larger conurbations, especially a rising number of immigrants and students. Prices for multi-family buildings therefore were rising annually by 8% on average, those for apartments by 6.8% and those for new-built by 9.7%. Rents were up by 4.3% in existing buildings and by 4.9% in new-built. Dresden posted most pronounced rental growth at 10.2%, followed by Frankfurt (9.7%), Berlin (9.4%), Hamburg (6.7%), Potsdam (6.2%), Leipzig (6.1%) and Munich (5.8%). Despite rising construction, housing demand cannot yet be met in larger cities, said HSH. Last year some 161,000 new residential units were created, up by 20% on 2010, and marking an apartment stock increase of 0.4%. The bank expects another rise of 0.45% this year. Vacancies are set to fall below 2% in the large cities by 2015, and to reach 4% on country average.
Supply Pressure
Investment in German residential real estate reached €6.6bn in first half 2012, doubling 1H11’s €3.3bn and already exceeding 2011’s full-year €6.2bn, says realtor Cushman & Wakefield. Both it and CBRE expect total transaction volume to reach at least €10bn in value. In a report, C&W found that 23 portfolios with over 250 housing units were transacted, falling from 43 in 1H11 – but the number of units changing hands rose by 96% to 133,000, due to several very large transactions. These include the placement of the final 20% of GSW with an asset volume of €500m, the sale of LBBW Immobilien with 21,700 units to a consortium led by Augsburg-based Patrizia for €1.4bn, the sale of DKB (25,000 units) to Hamburg’s TAG for €960m, the takeover of the Hawk portfolio, former Speymill, (22,000) by Cerberus for €1bn and the sale of BauBeCon (23,500) by Barclays Bank to Berlin’s Deutsche Wohnen for €1.2bn. “After a collapse in investment volume in 2009 and 2010 due to the dearth of major transactions, since the beginning of 2011 we have been seeing a significant increase of activity in the institutional investment market,” said C&W’s Matthias Franz,. “Although it is unlikely that the sales of TLG Wohnen, GBW and the putative sale of a large Gagfah portfolio will all be closed this year, we expect a transaction of some €10bn for the year as a whole." Average transaction size rose to 5,800 units from 1,600 in 1H11, while the average purchase prices per sq.m. has fallen to €770 from €790 at end-2011. Average multiples also softened to 13.0 times current net rent from 13.7-times in 2011. While eastern German assets in secondary locations reach multiples well below 10, investors are prepared to pay up to 16-times for attractive portfolios in the western urban regions or in Berlin. Realtor CBRE separately also predicted German housing deals this year exceeding €10bn, but measures deals with over 50 housing units, of which it registered €7bn in first half. It expects non-performing housing deals to reach €500m. The most active market is Berlin, with €2bn transactions seen to date. “We expect a volume of at least €3.5bn for the full year in the German capital,” said CBRE’s Michael Schlatterer. With single asset sales, Berlin may see over €7.5bn transactions this year, after €5.5bn in 2011.
Also of Interest
One of our team spotted this feat of engineering: The Magdeburg Water Bridge
Latest Property Offers
Leipzig
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310,000€ | Leipzig
Potential Yield: 8.8%
Type: Residential
Approx. Size: 500 sqm
This is a purely residential offer in an early 20th century period property, around 4km south west of Leipzig city centre. Situated in the popular district of Kleinzschocher, the property appeals to residents who appreciate the easy commute by road or tram to the city, whilst being in close proximity to the parklands and lakes to the south-west of Leipzig. The area has developed much over recent years, with most property in the area being refurbished to a good standard, including this one. The property has accommodation set over 5 levels with two apartments on each level.
A programme of refurbishment was undertaken in 2006 and the property is in very good condition, with apartments floored with laminate and good standard bathrooms. Some units have a fitted kitchen. At present 8 from 10 apartments are let, giving a stable yield at purchase, and the owner is open to providing a rental guarantee for the vacant units for the first 12 months of ownership.
310,000€ | Leipzig
Potential Yield: 11.1%
Type: Residential
Approx. Size: 606 sqm
This ten-unit property is located in Volksmarsdorf, a developing area just a few kilometres from the city centre. The units, which are in very good condition, are sized between 45 – 90 sqm thereby appealing to a large segment of the tenant population. Seven out of ten of the units are currently let.
It is well located for very quick transport into the city centre, and there are a number of nearby parks and a range of local amenities nearby.
Wuppertal
365,000€ |
Potential Yield: 9.86%
Type: Residential
Approx. Size: 510 sqm
Situated in the bustling city of Wuppertal, this residential property, set over 5 floors, contains 7 apartments. is located on the border of Wuppertal’s most affluent neighbourhood, Brill. Built in 1910, this apartment building is the perfect example of an old Wilhelmina style property, renovated to modern living stands, whilst keeping its original features.
316,000€ |
Potential Yield: 9.27%
Type: Residential
Approx. Size: 374 sqm
Situated in the bustling city of Wuppertal, this residential property, set over 5 floors, contains 7 apartments. is located on the border of Wuppertal’s most affluent neighbourhood, Brill. Built in 1910, this apartment building is the perfect example of an old Wilhelmina style property, renovated to modern living stands, whilst keeping its original features. Over the last 5 years, this building has never had any extended void periods
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