German residential investment market Q4 2017

10 January 2018

Transaction volume driven by rising prices – boom in developments and the Ruhr region

  • Transaction volume increases by 7% to €13.7bn
  • Average prices rise by 27% while the number of apartments sold falls by 16%
  • Investment in developments increases to 28% of the transaction volume
  • Investment in student apartments and micro-apartments exceeds €1bn for the first time
  • Even higher volume in prospect for 2018

Residential properties and portfolios of at least 50 residential units changed hands for €13.7bn in 2017, an increase of 7% compared with the transaction volume in 2016. In contrast, the number of apartments transacted fell by 16% year on year. A total of approximately 117,000 apartments changed hands between January and the end of December. “German residential portfolios remain highly sought after by both domestic and foreign investors, which is driving prices further upwards,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, adding: “Expectations of further rental growth and a sustained shortage of apartments are particularly responsible for the continued strong competition among bidders. German apartments promise the precise qualities many investors are seeking: consistent income with a low risk of vacancy.”

Average apartment prices rose by 27% compared with 2016 to approximately €117,000. The strongest price increases were witnessed in A and C-cities, with average prices in both categories rising by approximately a third year on year.  “The price growth in A-cities is, on the one hand, attributable to the rising percentage of development acquisitions and, on the other hand, a reflection of rental growth expectations in these cities,” says Matthias Pink, Director and Head of Research for Savills Germany, adding: “The price increases in second and third-tier cities demonstrate that investors are increasingly shifting their attention to these locations in view of the lack of properties in the major cities.”

The fact that the number of residential units transacted decreased in almost all city categories is likely a reflection of the supply shortage. Property companies and open-ended special funds alone have invested a total of more than €45bn in residential property over the last five years. “If the holdings of these investor groups change hands at all, they are predominantly bought by long-term investors and, consequently, are unlikely to come to the market again for the foreseeable future,” says Pink. Indeed, open-ended special funds and property companies were once again by far the largest net investors in 2017. The percentage of German purchasers declined slightly compared with the five-year average (81%) to 77%. Among foreign purchasers, investors from Switzerland and France were the most active.

With larger portfolios of existing property rarely available in the most sought-after locations, some investors are shifting their attention to other towns and cities or acquiring development projects. Transaction volumes in cities such as Oberhausen and Mülheim an der Ruhr, for example, totalled more than ten times the average figure over the last five years. Other cities in the Ruhr region, such as Duisburg and Bochum, also witnessed significant growth, as did Mainz. “The fact that even residential portfolios in cities with somewhat unfavourable demographic projections are finding buyers is likely a consequence of the pressure to invest among many investors,” suggests Pink.

Conversely, more risk-averse investors are focusing on development projects. Properties under construction or in planning accounted for around €3.9bn or 28% of the transaction volume. This compares with a five-year average of around 11%. “A likely reason for the increase in investment in developments is the fact that these new-build apartments are exempt from regulations such as the rental cap,” suggests Nemecek, adding: “In view of the significant increase in apartment construction, the supply of developments continues to increase.”

The fact that transaction activity has shifted in favour of development projects is also reflected in the size structure of residential portfolios transacted. While there were no transactions for more than 5,000 apartments, sales of portfolios comprising 1,000 to 5,000 units and 250 to less than 1,000 apartments accounted for 48% and 34% of units transacted respectively.

Another strategy of those seeking investment opportunities is moving into niche sectors such as student apartments and micro-apartments. Investment in this sector exceeded €1bn for the first time last year, with student accommodation accounting for almost €810m of this. “Student accommodation, which is generally new build, not only benefits from various exemptions from tenancy law but also from record numbers of students, which is attracting more and more investors to the sector,” explains Pink.

The transaction volume this year is likely exceed €15bn. “Many recently launched residential funds have just started to build their portfolios and the number of development projects continues to rise,” explains Nemecek, adding: “The planned acquisition of BUWOG by Vonovia is also likely to provide additional volume.”


 
 

General Enquiries

Berlin

 

Key Contacts

Karsten Nemecek

Karsten Nemecek

Managing Director
Corporate Finance - Valuation

Berlin

+49 30 726 165 138

 

Matthias Pink

Matthias Pink

Director / Head of Research Germany
Research

Berlin

+49 30 726 165 134