Le mie ricette per la real estate communitySentiment in the German real estate industry has hit a trough. That being said, assessments of how the current market conditions are affecting a given company’s business model differ significantly, depending on the respondents’ sub-sectors. The dimmest view is taken by property developers, whereas institutional investors and family offices have the brightest outlook. As far as demand for space among occupiers and tenants goes, the sector expects interest to decline over the next twelve months, particularly the interest in private residential property, offices, and retail units. By contrast, demand for rental apartments and logistics facilities is expected to remain stable or indeed to increase. These are the core findings of a recent survey that RUECKERCONSULT, a leading German consultancy firm for communication in the real estate industry, conducted among 166 real estate players from the areas of property development, investment and asset management, institutional real estate investments, commercial real estate financing, real estate consulting, capital management, as well as property and facility management.
Asset Management and Property Management Gaining in Significance
Industry insiders in general rate the current market conditions as moderately adverse for their respective business models with a score of -0.43 (on a scale of -3 to +3). Yet there are significant differences among the various sub-sectors of the real estate industry. Property developers returned the lowest score with -1.8 points. They were trailed at some distance by real estate financiers (-0.58 points), ahead of asset and investment managers (-0.34 points). Property and facility managers appeared to be the only ones unfazed by the current crisis situations, as they rated the current situation as good with a 1.75-point score.
“It is once again the time of asset managers and property managers, and the importance of putting work into a given property is moving back into focus,” said Thomas Junkersfeld, Managing Director of B&L Property Management. “Preserving their value and developing them in a pinpoint fashion, especially for sustainability, is essential in the current market situation. With that in mind, we take a cautiously optimistic view of the future, as the survey shows, and
Expectations among respondents regarding the long-term development of market conditions over the next five years are optimistic. The average score across all sub-segments of the real estate industry is 1.33 points, and thus in the positive range. However, it also shows clearly that the respondents do not expect the strained market situation to ease quickly, because the sentiment score for the coming six to twelve months is still in the negative range, if barely so at -0.03 points.
Demand for Office Space Expected to Slow
Industry insiders estimate that the demand on the occupier side for rental apartments will increase rapidly (46%) or indeed very rapidly (36%). The absorption of logistics space is also expected to persist on a high level. That demand for space will increase, is assumed by 42 percent of the respondents, and that it will remain stable by 39 percent.
The expectations for the use classes private residential property, office, and retail paint a different picture. Assessments for retail units are more or less balanced between those predicting stable demand (41%) and those predicting a drop in demand (44%). For private residential property (ownership apartments, single-family detached homes), the gap between forecasts is nearly as wide. While 41 percent believe that demand will decline, 27 percent expect it to remain stable and 26 percent predict a rise in demand for space. Offices appear to have returned the bleakest outlook. Here, 56 percent expect tenant-side demand for space to decline, while nine percent believe it will decline rapidly.
Patrick Brinker, Head of Real Estate Investment Management at Hauck Aufhäuser Lampe Privatbank, summarised the situation: “The party is over for real estate markets. However, the situation differs considerable from one asset class to the next. We are aware of emerging opportunities for equity-rich investors in the retail sector, specifically in regard to retail warehouses and retail parks. In the case of conventional retail parks away from high-street locations, the price-to-rent ratios have fallen from 25 or more down to well below 20. These opportunities present themselves in new-build construction less so than they do with existing stock. So, now is the time to demonstrate true management skills by coping with the changed market situation. Not least because the latter is compounded by the necessity to implement ESG measures.”
Logistics Real Estate Remains Investor’s Darling
The respondents’ assessment of investor demand for the various property use classes is strongly defined by the market demand for space they expect to see. The prospects are particularly bleak in the office sector. As many as 61 percent assume that demand for office real estate will contract over the next twelve months, while nine percent actually predict a nosedive.
Carsten Demmler, Managing Director of HIH Invest, commented: “Investor demand for office properties is admittedly going down, but it is descending from a very high level. For the longest time, office was the most popular use class, which means that the real estate portfolios of investors are already packed with assets of this type. In order to preserve property values and occupancy rates, emphasis should be placed specifically on a pro-active asset management and investment management.”
Investor demand for residential real estate presents a differentiated picture: While 31 percent of the respondents expect an increase in demand, 30 percent believe it will decrease, and 29 percent foresee a stable trend. In the case of retail real estate, opinion is divided between respondents who predict slowing (46%) and those predicting stable (40%) demand.
Logistics real estate could emerge as the big winner. Among the respondents, 41 percent assume that demand will increase. Only 16 percent expect demand for logistics real estate among investors to fall. 38 percent believe that demand will flatline. The same spread is reflected in the anticipated rental growth. A total of 60 percent of the survey respondents assume that rents in the logistics sector will go up over the coming twelve months. It is the highest percentage after the score for rental apartments, where 90 percent predict rent hikes.
“The results returned by the sentiment survey for the logistics segment match our own assessments. The majority assumes continued rental growth,” said Tobias Kassner, Head of Research and Member of the Executive Board at GARBE Industrial Real Estate. “We expect the same. We believe that rents have further growth potential, even if the pace of the growth is slowing. Worth noting here is that longer lease terms have been negotiated in some cases, because the economic downturn in Germany has made many industries more cautious. We have been noticing the jitters in logistics real estate pricing on the investment market as well. We expect the inflation rate to come down noticeably, even if we are not seeing any measurable decline just yet. Moreover, the ECB’s Governing Council has stated its intention to keep interest rates stable now. In the medium term, this will have a positive effect on the investment market.”
Selling Prices Increasingly under Pressure
Virtually for each of the use classes, a majority of respondents expects prices to soften in the coming twelve months. The respective majorities equal 77 percent for offices, 64 percent for retail real estate, 56 percent for private residential property, and 55 percent for multi-family home/apartment buildings.
“Naturally, the fact that only very few transactions or none are proceeding at the moment dampens the mood on the housing market. When viewed in the light of day, rising rent rates and declining selling prices for apartment buildings present great entry opportunities for institutional investors, with the majority of players focusing on the major cities or their directly surrounding regions,” said Einar Skjerven, Managing Director of the Skjerven Group, as he commented on the current situation on the residential investment market.
In the case of logistics real estate, only 29 percent expect selling prices to soften, whereas 32 percent assume that prices will go up and another 32 percent expect prices to remain the same.
“In Germany, logistics real estate developments will sell for an average price-to-rent ratio of 22 times the annual rent while the ratio in Austria is 20 times. This means that selling prices exceed development costs by an amount equivalent to four or five times the annual rent. Property developments in Germany are therefore a paying proposition,” said Tobias Kassner with respect to the situation on the logistics real estate market.
Source : Company