German Real Estate News

German Real Estate News 19-2017 German Press Review Comments Facts & Figures about German and European Property Markets (Weeks 35/36) Volume XII, Issue 19, Date of Publication 12 September 2017 Real Estate News Housing construction: Germany s distinctly average performance On 01.09.2017, the SÜDDEUTSCHE ZEITUNG reported on a new LBS Research analysis of housing construction volumes across Europe. Despite a significant increase in residential construction over the last few years, Germany still only managed to rank in the middle of the European pack. The study s data was collated by Euroconstruct, a European research network, and revealed that 278,000 residential units were built in Germany last year, equivalent to 3.2 units per 1,000 inhabitants. Many other European countries had far higher housing construction rates, including Switzerland s 6.4 per 1,000 inhabitants, and Norway s 6.1 per 1,000 inhabitants. Countries with lower housing construction rates included Denmark, Great Britain and Italy. A housing policy of broken promises As reported by the IMMOBILIEN ZEITUNG on 31.08.2017, Germany s Grand Coalition of CDU/CSU and SPD has failed to live up to its promises to increase the supply of affordable housing, According to analysts at DB Research, Germany s coalition government has failed to achieve its two main goals: To reduce the rate of rental price inflation and substantially increase residential construction volumes. Analysing the new CDU election manifesto, the study s authors highlighted Angela Merkel s explicit commitment to sideline the interests of the SPD as it strives to deliver 1.5 million new apartments during the next parliament. According to DB Research, the CDU is considering a range of potentially sensible measures, including the temporary introduction of declining-balance depreciation for property. The CDU also wants to simplify Germany s mortgage lending regulations, a goal it shares with the liberal FDP. Energy-efficiency no longer such a key factor On 31.08.2017, the IMMOBILIEN ZEITUNG reported on a survey of real estate agents carried out by the online property listing portal, Immowelt, which revealed that energyefficiency has become less of a key factor as the supply of property coming to market has dried up. Only 43 percent of those surveyed

claim that higher prices are achieved by properties that have undergone energyefficiency refurbishments. Last year, 46 percent of agents believed this was the case, while in 2010, 60 percent said that energyefficiency was a major price factor. With expensive modernisations often costing more than the extra revenues they generate, almost one third of real estate agents have been advising their clients against energyefficiency refurbishments. Residential towers are here to stay On 30.08.2017 and 01.09.2017, the FAZ METROPOL and FAZ devoted extensive coverage to the residential towers currently being built in Frankfurt, and examined how the image of high-rises is changing in Germany. When it comes to residential towers, Germany has a lot of catching up to do, said Thomas Zabel from Zabel Property. An average German skyscraper is 85-metres tall, while in other countries they commonly exceed 100 metres. High-rise buildings in Germany that are taller than 100 metres are extremely rare. Frankfurt currently boasts 15 residential high-rises in the 60-metre-andabove category, but only three that are over 100 metres. But there are a fairly large number of residential towers currently being planned, some of which will indeed exceed 100 metres. Construction has started on the Grand Tower, which, when completed, will measure 172 metres, and the Henninger Turm in Sachsenhausen, which was finished last month, towers 140 metres over its surrounding area. Vertical living is the only solution to our housing shortage, said Zabel. And yet, when they think of residential towers, a majority of Germans still picture the characterless, industrial buildings erected in the sixties, seventies and eighties. Germans tend to take a more reserved view of the latest generation of high-end high-rises, especially as they are unfamiliar with hotel-like service, concierges and staffed lobbies in residential buildings. However, construction costs for high-rises are significantly higher than for more conventional buildings as a direct result of their special fire protection, structural and technical requirements. Monthly service charges are also higher, and every tower in Germany has to have at least two escape routes. Nevertheless, Zabel expects residential high-rise buildings to become more and more established in Germany, especially as the residential high-rise market in Germany is noticeably picking up speed. 85 percent of the apartments in Grand Tower have already been sold, while all of Henninger Turm s condominiums have been snapped up. According to bulwiengesa, 97 residential towers are scheduled for completion by 2022, offering a combined total of 18,400 new apartments. Berlin s skyline will feature 27 new towers, with 24 in Frankfurt, 17 in Munich and 12 in Düsseldorf. Property prices just keep on rising As revealed by the BÖRSEN ZEITUNG on 05.09.2017, a new IVD study has found that property prices in Germany continued to rise strongly over the last 12 months. The study analysed data from 370 towns and cities and concluded that, between July 2016 and June 2017, the average price of a condominium in Germany increased by 6.5 percent. The price of a newly built condominium in Berlin rose by 21.3 percent, while prices in Frankfurt and Cologne increased by 18.7 percent. Singlefamily homes added an average of 5.4 percent. As property price inflation in cities

shows little sign of slowing, more and more people are choosing to live in peripheral suburbs and exurbs, which has driven property prices in smaller cities with between 50,000 and 100,000 inhabitants up by 6.6 percent. The trend towards higher property prices has continued unabated since 2010, said the IVD s president, Jürgen Schick, who highlighted the ongoing housing shortage as the major driver of price increases. He called for more building land to be approved, especially in major urban areas. Prices for apartments in cities with more than 500,000 inhabitants rose by 7.8 percent, following rises of 9.7 percent the year before. It is gradually becoming clearer that prices for existing housing cannot increase forever, was one of the conclusions drawn by the study and reported by the BÖRSEN ZEITUNG. Mortgage lending remains on a stable footing The third round of stress tests carried out by the Bundesbank and the Federal Financial Supervisory Authority (BaFin) concluded that, despite constantly rising property prices, there are no indications of a property price bubble in Germany, reported the IMMOBILI- ENZEITUNG on 07.09.2017. The latest stress tests analysed 1,555 small and medium-sized credit institutions and revealed that property prices have risen by up to 50 percent since 2010, leading to individual overvaluations of between 15 and 30 percent above fundamentally justifiable price levels. At the same time, the volume of mortgage lending has increased, although the report sees this as no cause for concern because mortgage lenders have not significantly relaxed their mortgage approval standards or credit conditions. In comparison with the growth registered during the early years of the century, the current rate of growth is described as moderate. Banks and consumer protection agencies had feared that last year s new residential mortgage lending directive would lead to a dramatic fall in mortgage lending, a fear that has clearly not materialised. Are student apartments still an attractive proposition? The Cologne Institute of Economic Research (IW) has highlighted a potential oversupply of student and micro-apartments, claiming that many students cannot actually afford to live in such apartments. The IW s findings were reported by the HANDELSBATT on 05.09.2017. What s more, the IW claims that demand is set to decline anyway as the number of students decreases naturally over the next few years. A record 2.8 million students were enrolled on courses in Germany during the winter semester 2016/17, although Savills predicts that student numbers have now peaked. Nevertheless, a Savills study has identified no corresponding slowdown in the construction of student housing in Germany s 30 major university towns and cities. Sonja Knorr from Scope is sceptical of recent developments. As she points out, it does not take long for many of the students who initially rent these apartments to start actively looking for more affordable accommodation, often in shared apartments. As a result, fluctuation in these student residences is often very high, which only serves to increases the frequency of maintenance they require. While these apartments are becoming ever more expensive for their student tenants, they are becoming less financially attractive for their landlords. According to Savills, the

sector s rental yields, along with the yield premium vis-à-vis traditional rental apartments, are in decline. Knorr warned investors to adjust their expectations accordingly: There is a real hype around student residences and micro-apartments in Germany right now. Almost everyone is overestimating the sector s long-term achievable yields. Berlin s housing deficit is larger than realised According to the updated Urban Development Plan Housing 2030, Berlin needs 194,000 new apartments by 2030, reported the BERLINER MORGENPOST online on 08.09.2017. The study based its conclusions on the latest population forecasts (117,000 apartments for 181,000 people, including 24,000 refugees), combined with the construction deficit for the years 2013 to 2016. Measured in terms of population growth, an additional 77,000 housing units should have been built in recent years. In order to make up for this undersupply, and to cope with further population growth, 20,000 apartments need to be built per year over the next five years, 6,000 more than had previously been calculated. If we are to build the huge number of apartments we so desperately need, it is important that we can continue to rely on the commitment of the private sector, said Berlin s Construction Senator, Katrin Lompscher (Linke). Munich is a City of the Future A new study, The DNA of Success: The City of the Future 2040, published by Wealthcap, the Fraunhofer Institute of Labor Economics and Organization (IAO) and the MLI Leadership Institute, has concluded that Munich is the most future-oriented major metropolis in Germany. The study s findings were reported by the SÜDDEUTSCHE ZEITUNG on 08.09.2017. The study s quantitative section, the Morgenstadt City of the Future Index, awarded first place in the rankings to Karlsruhe. However, Munich was the only city with more than one million inhabitants to feature in the top ten, ranking second overall, followed by Freiburg, Jena, Dresden and Heidelberg. Major cities, including Hamburg (13th) or Berlin (14th) didn t perform anywhere near as well. Munich ranked first in the study s innovation category, and performed equally well in the categories economic resilience and environmental sustainability. Despite its victories in these categories, the study found that no other major German city has such a small amount of space available for future urban development, which the authors predict will lead to a loss of green spaces, a high number of cars per inhabitant, comparatively poor air quality and sharp rental price increases. Slight decline in European commercial investments On 02.09.2017, the BÖRSEN ZEITUNG reported on figures from Knight Frank revealing a 7.9 percent decline in transaction volumes on the European commercial property investment market in H1 2017 compared to H1 2016. Investment totalled EUR 90.3 billion, including EUR 22.4 billion in Germany (+ 41.2 percent), followed by EUR 22.1 billion in the UK (- 19.9 percent). As a result of political uncertainty created by the UK s Brexit vote, and the impact this is having on the country s property markets, Germany has firmly established itself as the leading Euro-

pean investment destination for North American investors and the most important hub for intra-european investment. Catella remains optimistic regarding Europe s commercial property market and has forecast that the flow of investment into the sector will continue, and may even increase, despite the range of existing geo-political risks. Germany s commercial property market flourishes CBRE predicts that Frankfurt s commercial property market will be the biggest winner from Brexit, ahead of both Dublin and Paris. CBRE s assessment was reported by the BÖRSEN ZEITUNG on 07.09.2017. During a press conference in Frankfurt, CBRE s Carsten Ape told journalists: We think that 5,000 to 10,000 new Brexit-related jobs in Frankfurt is entirely realistic. According to CBRE, Frankfurt is set to enjoy medium-term employment growth, which will give yet another boost to Germany s positive economic growth trajectory. With a vacancy rate running at 10.6 percent, Frankfurt also has enough office space to meet projected demand, including prime office space. In terms of the 320,000 sqm of new office space in Frankfurt due to come on-stream by 2019, CBRE s Jan Linsin observed that half has been pre-let. The situation is, however, far more dramatic in Berlin. Berlin is by far Germany s largest FinTech hub, but compared to London, it s little more than a village, said CBRE s Fabian Klein. At EUR 39.50/sqm/month, Frankfurt continues to set the pace as far as prime office rents are concerned, compared to EUR 26.00/sqm in Berlin. CBRE has forecast strong year-end figures for both Germany s office letting and investment markets. Multi-level logistics is gaining ground On 07.09.2017, the IMMOBILIEN ZEITUNG devoted extensive coverage to the growth of multi-level logistics real estate in Germany. Rainer Koepke from CBRE conceded that multi-level logistics properties are not exactly new to Germany, having already been used by the mail order industry for many years. Last summer, Segro handed over the keys to a two-storey logistic property on an industrial estate in Munich-Daglfing to Amazon. The property s unique feature is the truck ramp that provides access to the 8,000 sqm of logistics space on the building s second floor. A 40-tonne truck can easily drive up to the second floor and move around up there as it would on the ground floor, said Andreas Fleischer from Segro. The ramp s 6 percent slope poses no problem at all and, thanks to integrated heating elements, can be used just as easily in winter. Nevertheless, the ramp s construction costs were not insignificant and were the building s largest cost item. Still, such ramps ensure that multi-level logistics buildings are well-equipped for subsequent third-party use. According to a new CBRE study, companies stand to benefit in areas where land prices have risen above EUR 500/sqm and demand for multi-level halls is strong due to specific location factors, as the cost of land and transport costs is proportionately lower due to the centrality of their locations. CBRE s Rainer Koepke also believes that more multi-level buildings are needed, citing the increasing shortage of land in Germany's top regions, together with growing demand for space, especially as a result of e-commerce, as major factors. In addition, Segro and Amazon's two-storey logistics property in Munich is also equipped with charging stations for low-noise and zero-

emission electric vehicles, reported the IM- MOBILIEN ZEITUNG on 07.09.2017. This second article focused on the challenges associated with the final logistics mile and examined the strategies adopted by logistics companies. The Segro property was built close to the city centre in order to better supply the surrounding area. According to Fleischer, the property s rents range between EUR 9.00 and 10.00/sqm, which is admittedly higher than the local average of around EUR 7.00/sqm. But the rent is a relatively minor component for this location, said Fleischer, who highlighted the time savings per vehicle that can be achieved here. GERMAN REAL ESTATE NEWS Only the contributions titled Commentary by Dr. Rainer Zitelmann reflect the editor s opinion. Responsible: Holger Friedrichs. The facts represented in press items are not checked for accuracy. Copyright for GERMAN REAL ESTATE NEWS: PB3C GmbH, Rankestaße. 17, 10789 Berlin, Germany. Copying or electronic forwarding of the newsletter, except by contractual agreement with PB3C GmbH, constitutes a violation of applicable copyright laws. PB3C GmbH PB3C GmbH is Germany s leading consulting company for the positioning and communication of real estate companies and fund companies. It advises national and international clients in the areas of strategic press and public relations work, capital market communication, and positioning. Other spheres of activity include the compilation of track records and statements of account, surveys and research documents, as well as the conceptualising of, and copywriting for, customer newspapers, newsletters, Internet presentations, and brochures. PB3C GmbH supports the market entry of foreign companies in Germany, and brokers collaborations for real estate and fund companies. For detailed information about service spectrum and reference customers of PB3C GmbH, please visit www.pb3c.com or send an inquiry directly to info@pb3c.com.