Record month of September
Text: Matti Schenk
September was the strongest month of all time in the German commercial and residential property investment market. The overall transaction volume last month totalled almost €14.0bn (see Table below). Commercial property has changed hands for around €43.4bn during the year to date, representing decrease of 2% compared with the corresponding period last year. The transaction volume in the residential investment market has totalled €12bn, which is also broadly in line with last year (-3% compared with Q1-Q3 18).
While a reversal in interest rate policy now appears unlikely to be a factor for several years, a potential economic downturn may become an increasingly important issue for investors. While the German economy remains in an industrial recession, this is scarcely perceptible in the real estate markets and not at all discernible in the major cities at present. Should this recession continue for a prolonged period, however, the downturn will spread to other sectors of the economy. Companies are then likely to become somewhat more hesitant when it comes to leasing office space. Whether this materialises depends not least on whether the USA and China settle their trade conflict. As far as demand in the real estate investment markets is concerned, however, the impact of the deferral of interest rate hikes can be expected to outweigh that of the economic downturn, with transaction volumes remaining at a very high level beyond the current year. The commercial transaction volume is likely to increase to €65bn by the end of the year, which would be another investment record (see Graph below).
In the residential investment market, the fundamentals remain largely unchanged. In fact, in view of the continued growth in the number of households and the further decrease in building permits, the supply shortage in many regions could even increase. Apartment owners can, therefore, expect income and capital values to remain stable in many locations. Hence, investor demand is likely to remain strong. Nevertheless, there remains a growing uncertainty among investors with regard to the regulatory measures that have already been passed and those that remain on the table, particularly in respect of Berlin. The current discussion surrounding the rental cap makes it difficult for permissible rental levels to be estimated at present, which may well deter many investors from acquiring further apartments in the German capital for the time being.
Events in the German real estate investment market during the year to date have been dominated by a number of major transactions. There have been five portfolio transactions with a volume above €1bn this year, compared with only three in 2018. Furthermore, there have been four individual transactions with a volume of at least €500m so far. Both of these are new records for the first three quarters of a year and a reflection of the sustained extremely high pressure on investors to invest capital.
For further information, like the top 10 transactions in September, please see the PDF file.