DEGI: "Topic of the month"

30 marzo 2007

Property markets in east Germany Let’s be honest – who does not, at the mention of “real estate in east Germany”, immediately think of how the markets were overstated in the mid-1990s? And which property specialist doesn’t knit his brow as he recalls the handling of the tax gifts back then or the vacancy rates of more than 20 %? “With so much being invested in the infrastructure, it’s about time something happened,” is another remark often cited by self-appointed experts.
Unfortunately, these generalisations neglect the recovery of the central and east German property markets that has begun softly and at a low level. For a sober study of the figures reveals there has been renewed investment activity for some 20 months now. But we’re not talking about the high-profile cases such as BMW, Porsche or AMD. No – foreign and domestic property investors are again buying properties to an increasing extent. After a rest period of almost 10 years, movement can again be discerned. Whereas investments back then were mostly made by local and regional investors, supraregional and foreign investors again have the region in their sights. In the months ahead we are going to read more and more press reports about properties being bought in the east German federal states. True: this positive development has gone almost entirely unnoticed by the public so far.
Yet the socio-economic disparities in central, east and north Germany, the so-called new federal states, are going to become even more visible. The few “economic islands” such as Leipzig/Halle, Dresden, Erfurt/Jena, Rostock/Schwerin and the greater Berlin area with Potsdam stand in contrast to countless locations – even regions – in which only self-confessed opportunists see lasting chances for real estate investment. It’s time, then, to concern ourselves more closely with the topic. Because there are opportunities to be found.
Spatial structures After reunification, a lot was written about “Aufschwung Ost”, the state-funded economic recovery programme for east
Germany, which at the same time was perceived as a national task characterised by massive investments, solidarity and tax incentives. But viewed from the national – and even more so from the international – perspective, the new federal states are still often seen as cases for subsidisation with which, above all, one associates high unemployment, a declining population and prefabricated high-rise buildings. Yet the structures of a thoroughgoing east-west or north-south divide are in the process of breaking up. All over Germany, the socio-economic differences are becoming more apparent. Growth regions stand in contrast to regions that are marked by stagnation, and some of the growth regions are situated in the east of Germany. And the word is slowly spreading. Yet investors and local authorities alike tend to generalise heavily when analysing data of their regions. To this day, in year 18 after German reunification, a new uniform expression has yet to be found for the federal states formerly referred to as “East”.
Strictly (i. e. geographically) speaking, the regions are situated in central, east and north Germany.

North Germany
Mecklenburg-Vorpommern, with Rostock, Schwerin, Wismar, Stralsund and Greifswald, is the north German part of the new federal states. The largest German islands, Rügen, Usedom, Poel and Hiddensee, and the peninsula Fischland-Darß-Zingst are situated in this state and are, like the Mecklenburgische Seenplatte, a popular destination for tourists in Germany. The shipyard industry in Stralsund, Wismar, Rostock, Wolgast and Greifswald is by tradition strongly developed. Plans exist to concentrate in future on the settlement of companies engaged in biotechnology and medical technology around the towns of Greifswald and Rostock, which boast venerable, traditionsteeped universities.

East Germany
Contrary to the term “east Germany” that has become firmly established in the meantime, only the area comprising the federal states Brandenburg, Berlin and a small part of Mecklenburg-Vorpommern belong, strictly speaking, to (north) east Germany. Berlin and Brandenburg together make up the metropolis region Berlin/Brandenburg.

Central Germany
In the first half of the 20th century the area surrounding Halle/Leipzig/Bitterfeld and Leuna, known today as the “chemical triangle”, was also referred to as the “central German industrial region”. Due not least to its very good transport infrastructure, the Leipzig-Halle airport (which is the only large airport in this region) and the Leipzig central railway station, the Leipzig/Halle conurbation is today the hub of the
federal states Saxony, Saxony-Anhalt and Thuringia. The most important business sectors now include, again, the auto and auto supply industry as well as the hi-tech sector with centres in Jena (Jenoptik) and Leipzig with its focus on biotechnology.
That supraregional branding is increasingly replacing local parish pump politics, is more future-oriented in the longer term and can by all means have its positive side is demonstrated by the example of the “Initiative Central Germany”, under which Saxony, Saxony-Anhalt and Thuringia have joined forces to strengthen this region as a whole and boost its image.

Property market analysis
An analysis of the real-estate economic ratios illustrates on the one hand the relatively strong growth rates, e. g. in rent price developments; on the other, however, these locations cannot escape the yield compression phenomenon either. In other words, this development can take place only where there is an influx of capital and property values rise. Here are a few examples. Rents for office properties in the regional locations looked at in the new federal states rose at a rate of 4 %, from EUR 9.80 to EUR 10.40 per m2, and therefore more strongly than in the regional office locations of the old federal states, from EUR 11.40 to EUR 11.50 per m2, or by 1 %. Top yields were down not only in central, east and north Germany but also in the west. In the east, they fell from 7.4 to 7.2 % or by 20 basis
points, while in the office locations in the old federal states, the corresponding decline was one of 40 basis points (7.0 to 6.6 %).
Looking at the vacancy ratio from a regional perspective, the development was relatively favourable, especially in central Germany, falling from 15.4 to 15.1 % or by 30 basis points. In the west of Germany, vacancies were down in the regional locations from 5.9 to 5.7 % or by 20 basis points.
In 2006, a total of EUR 46.1 bn was invested in Germany. Of that, 73.9 % or EUR 34.07 bn was accounted for by the old federal states and 26.1 % or EUR 12.03 bn by the new states.

Central Germany

• Suhl EUR 4.00 – 5.50 per m²
• Weimar EUR 6.00 – 7.50 per m²
• Eisenach EUR 4.50 – 5.50 per m²
• Dessau EUR 5.50 – 7.00 per m²
• Plauen EUR 5.00 – 6.00 per m²
• Görlitz EUR 7.00 –11.00 per m²
• Zwickau EUR 5.00 – 7.50 per m²

East Germany

• Brandenburg a. d. H. EUR 4.50 – 8.00 per m²
• Frankfurt/Oder EUR 6.00 – 9.00 per m²

North Germany

• Stralsund EUR 6.00 – 7.50 per m²
• Greifswald EUR 7.50 – 8.50 per m²
• Wismar EUR 5.50 – 7.00 per m²

Relatively speaking, there was one investment in the east for every three investments in the west of Germany. The following examples may be mentioned here to represent numerous investments made in the submarkets: In the housing segment, considerable debate surrounded the investment by Fortress Germany GmbH, which in 2006 took over Dresden’s housing company Woba with 48,000 dwellings, for EUR 1.74 bn. The Allee-Center in Leipzig West was sold for EUR 103.3m and the Nova Eventis shopping park (formerly Saale Park) in Günthersdorf near Leipzig for EUR 285.6m to Prime Commercial Properties Plc. But it needn’t always be big-figure deals: an investment amount of approx. EUR 5m, for example, has been put up for a power store development project in Prenzlau, Brandenburg.
Besides the better-known office centres Leipzig and Dresden, investors are focussing more and more on B locations. Yet despite on the whole positive omens, the office property markets may be seen to have undergone a very uneven development. An intraregional analysis of the office centres illustrates that classical ranking still has not occurred within the locations – a sign that structural effects are still having a
strong impact. Thus, towns such as Potsdam, Rostock, Magdeburg and Erfurt have a higher top rent in the office sector than Dresden and Leipzig. There are still high vacancy rates. A comparison of the average prime rents of the regions shows that the region east Germany comes out on top, due above all to the German capital Berlin and Potsdam, with EUR 11.56 per m2, ahead of central Germany with EUR 10.86 per m2 and north Germany with EUR 8.80 per m2. It should therefore be clear to the supraregional investor that the longer-term prospects of the office markets are to a high degree still being determined by regional factors – large influxes or supraregional relocations are the exception rather than the rule. This makes it eminently important when considering an investment to devise a location-specific investment strategy.

(Fonte: Ufficio Studi DEGI)