In the wake of heightened political and economic instability across parts of Europe and beyond, Germany is earning itself a reputation as a safe haven for investors.
According to JLL’s Capital Flows Report, the country’s real estate market recorded transaction volumes of 12.6 billion euros in the first quarter of 2017—its strongest Q1 on record. Office real estate continues to take the lions’ share of investment.
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.
2017 is also the first time Germany’s office properties became more expensive than high street retail real estate, offering similar yields (3.47 and 3.48 percent respectively). 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.
“A solid political framework and strong economy certainly contribute to German real estate’s growing reputation as a safe haven,”
says Timo Tschammler, CEO, JLL Germany. But this is not necessarily a new development: the country has enjoyed a relative lack of social inequality and economic volatility for a number of years.
A sea of uncertainty
What has intensified, however, is the fragility of global structures, including across the border in France and beyond the North Sea in Britain.
“Against this backdrop, it’s not surprising that Germany is increasingly perceived as a lighthouse in a sea of uncertainties,” says Tschammler.
Not so long ago, the German real estate market was considered ‘boring’, thanks to measured growth alongside accurate scrutiny and sound financing. “These are still the hallmarks of the German market, and ultimately they belong together,” says Tschammler. “But it’s precisely these factors that make Germany so attractive today.”
It’s not only current events that offer investors confidence in 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, UK 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.