Flying largely under the radar, German investors have outdone every single other source of capital in cross-border real estate deals over the last decade. But those property players now face significant competition in the last place they might expect: back home.
German investors have pumped US$151 billion into international real estate in the last 10 years, according to a recent JLL report. That’s a figure that outdoes even the US$133 billion outflow of capital from U.S. and the US$100 billion put to work internationally by U.K. sources.
What’s more, they stayed in the game after Lehman Brothers blew up, much like their Asian counterparts. German investors such as Deka, Allianz and GLL are now poised to cash in on deals made at the bottom of the market, recharging their “dry powder.”
Europe has drawn the bulk of that German investment. But recent activity indicates that German investors are spreading their wings.
“Typically they like core CBD office or large shopping-centre assets,” David Green-Morgan, the director of global capital-markets research at JLL says. “Once they become more familiar with locations they then may look slightly up the risk curve towards industrial and logistic opportunities.”
Japan, Brazil and Australia have all recently proved fertile hunting ground for German investors seeking fresh opportunities. That quest is likely to take them into India, China and other parts of Latin America in the next decade, Green-Morgan believes.
Recent deals such as Deka Immobilien’s US$123 million purchase of the Lumley Centre in Auckland and the US$700 million deal by ECE to buy a development portfolio of retail property in Brazil indicate the greater scope of their ambition.
But their position at the top of the investment-world pack is threatened by new rivals from China, South Korea, Taiwan, Canada and Norway, home to many of the biggest pension funds and sovereign wealth funds in the world.
Those new rivals are even taking on German investors on their home turf, particularly Germany’s “Big Five” markets – Berlin, Düsseldorf, Frankfurt, Hamburg and Munich. Germany has seen US$52 billion in capital inflows into real estate in the last decade.
Most of that activity was pre-crisis. International players accounted for 71 percent of all deals in Germany between 2005 and 2008. Their preference was for big-ticket single-property purchases and deals for whole property portfolios, particularly outside the main German urban hubs.
All that activity came to a grinding halt when credit dried up. By 2009, more than four out of every five deals in Germany went to domestic buyers.
There are signs the tide has turned once again. In the first half of 2014, international players accounted for 52 percent of all transactions in Germany. Intra-European deals dominate, such as the purchase by London-based Tristan Capital Partners of the Walle-Center in Bremen at the start of 2014.
However, U.S. money is making a return, and Asian investors are appearing for the first time. Shortly after the financial crisis, the National Pension Service of Korea snapped up the Sony Centre office complex in Berlin. Asian buyers were a key source of capital immediately post-crisis, accounting for 1 in every 10 deals transacted in 2010.
It’s highly likely that the investor base will swell as Chinese, Taiwanese, Korean, Australian and Japanese investors seek to outdo returns in their often-overcrowded domestic markets. Their preference, unlike the pre- crisis players, is for flagship office deals in the core cities.
Charles Kingston, who runs Refire, an English-language magazine devoted to the German real-estate market, has already seen a significant amount of buyers from China shopping around.
“The German real estate market has become increasingly attractive for global investors, not only because of its depth across all asset categories, but also because of the safety and stability of the market for long-term investors,” Kingston says.