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The fundamentals of the German residential property market remain exceptionally favourable from an investor's perspective. Institutional buyers in particular have so far focussed on acquiring new builds. However, in view of the decline in new construction activity, significantly fewer corresponding products will come onto the investment market in the coming years. This shortage of supply is not the only reason why more investors are likely to look at existing properties. This is because the need for refurbishment and upgrading on the residential property market is enormous. After all, 46% of the multi-family housing stock only has an energy efficiency rating of E or worse. This creates potential for so-called manage-to-green approaches. This involves acquiring older existing buildings, refurbishing them to make them more energy efficient and then selling them on or keeping them in the company's own portfolio. As apartment buildings with a poor energy balance are now being offered at a significant discount on the investment market, value-add buyers can benefit from more favourable entry prices. But that's not all: in addition to the possibility of rent adjustments as part of the modernisation levy, there are various federal and state subsidy programmes that contribute to higher returns on manage-to-green approaches from an investor's perspective. Additional increases in value can be achieved through additional storeys or redensification.
The energy-efficient refurbishment of existing properties improves the energy efficiency of existing properties, which contributes to the environmental aspect (E) of the ESG criteria. At the same time, high-quality but still affordable living space is created, which contributes to social sustainability (S). In our opinion, these advantages should also increasingly appeal to institutional end investors, who can purchase refurbished existing buildings as an environmentally and socially sustainable and at the same time more affordable alternative to new builds. Manage-to-green approaches are therefore not only an opportunity for value-add players, but also create potentially attractive investment products for institutional buyers.
With our Savills Insights on the value-add potential in the residential property market, we would like to provide you with an overview of the opportunities offered by manage-to-green approaches. Together with our study partner GSK Stockmann, we also take a look at the framework conditions for rent increases and subsidy options.
To our Savills Insights on the value-add potential in the residential property market.