Savills : Residential sector in Germany continues to boom

Karsten Nemecek, Managing Director Corporate Finance - Valuation for Savills Germany, says: 'The transaction volume exceeded the €15bn mark for the third time in succession. Contributing factors included further increases in capital values as well as an above-average proportion of investment in the top seven markets. Almost 39% of all apartments sold were situated in one of these cities.

'While additional regulation, particularly in Berlin, caused uncertainty among some investors, the public sector made massive acquisitions. The regulations on the table which, to some extent, vary from one federal state to another or even from one municipality to another, are likely to make market entry more difficult for international investors. Hence, domestic investors and those familiar with the market are at an advantage.'

The two most active buyer groups last year were open-ended special funds and residential property companies, who were responsible for approximately half of the transaction volume combined. Although the number of development acquisitions remained constant, these transactions accounted for a significant proportion of the overall volume. Such deals, which included the acquisition of the Kleyerquartier in Frankfurt or Düsseldorf's Glasmacherviertel, were responsible for approximately €4.7bn or around 27% of the transaction volume.

Matti Schenk, Senior Consultant Research, Savills Germany, says: 'Instead of the public sector spending €2.7bn on the acquisition of existing apartments in 2019 they could have probably initiated the construction of more than 25,000 apartments on municipal sites. This would undoubtedly provide a greater contribution to relieving the strain on the housing market.'

'High-volume urban district developments are a particularly prominent theme in the German real estate market at present. These larger residential districts with complementary uses are seeking to meet the requirements of modern urban living with short distances and a mix of uses. Hence, they are likely to enjoy long-term demand as residential locations and are consequently becoming increasingly sought-after by investors.'

The investment volume for student apartments and micro-apartments totalled approximately €940m in 2019, representing an increase of 60% compared with the previous year. 'The number of students reached a new record level in the 2019 winter semester while the number of single-person households continues to rise,' says Schenk. 'Consequently, demand for smaller apartments remains particularly strong in major cities and university cities, which is why the fundamental data for these niche segments of the apartment market remains positive.' The German student housing sector also saw new market entrants with for example Singapore Press Holdings buying the Galileo Residence in Bremen for approximately €16m, with Savills advising the vendor.

'The deferral of interest rate hikes for the foreseeable future and the lack of relatively secure investment alternatives are likely to ensure that even more capital flows into residential property worldwide,' adds Nemecek. 'Although the spiral of regulation continues to turn here in Germany, the country's large rental apartment market and correspondingly high liquidity are likely to ensure that it remains one of the most sought-after investment destinations. We also expect the public sector to remain highly active on the purchaser side.'

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