Germany continues to attract national and international investors with a booming real estate market for commercial as well as residential construction projects as a result of low interest rates. This article takes a closer look at the German real estate market, the impact of Covid-19 and German real estate companies that are listed on the stock exchange.
Investment in German real estate
The German real estate sector has experienced steady growth over the past few years. It attracts investors due to its stability and steady returns as the demand for properties in Germany, in particular in the metropolitan areas, continues to rise. More than half of the total investment capital was spent in the large German cities. Even though the pace of construction projects in the metropolitan cities is increasing correspondingly German cities have experienced unchanged high demand and too little supply.
In 2020, €79.2 billion were spent on German real estate investment. Around €59.2 billion were invested in the field of commercial property. The multi-family housing market for portfolios of at least 50 units achieved €20 billion of investment in 2020. With a share of 35%, accounting for €27 billion, office investments remained the most important asset category, followed by residential properties worth €20 billion, retail with €12.3 billion and logistic real estate worth €7.6 billion.
Taking a look at real estate investors in 2021, the largest segment was pension funds (21%), looking for a secure return as government bonds are still yielding negatively. The next investor category is special funds with 20% and equity or real estate funds with around 12%. Other investors include insurance companies, public sector companies and investment managers. Around 25% of the total investment of the first quarter of 2021 stemmed from foreign investment, the majority from the US or Europe.
Real estate prices in the German metropolitan areas
The prices for owner-occupied homes and apartments have been rising in Germany for more than ten years. This has especially been the case in the A-list cities Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt am Main, Stuttgart and Munich. A recent study on the development of the real estate markets in the seven top locations found out that in terms of existing apartments, Berlin is the most affordable top location at €10.70 per square meter in contrast to almost €20 per square meter in Munich for a rented apartment. Berlin even managed to increase the number of apartment constructions by five times compared to the volume of newly built property ten years ago. The overall rise in residential rent prices has not been slowed down by Covid-19. In 2020, the average rent in Berlin increased by 5%, in Munich by 1% and in Frankfurt by 2,5%. Therefore, investors continue to expand their portfolio of residential real estate.
In regard to retail rent, the A list locations in the big cities have seen the highest peak in 2019. In that year the highest rent in Berlin and Frankfurt was €300 per square meter and €345 in Munich. All three locations have experienced a considerable decrease of 3% to 7% in 2020 and this development is likely to continue as e-commerce continues to grow replacing traditional retail and the demand for retail units.
Covid-19 and its impact on real estate
The trend toward even higher demand during the Covid-19 stresses the fact that real estate investments are seen as a safe investment form in contrast to fluctuating stocks, especially in a difficult economic environment. This is also reflected in further increases in prices to buy or rent properties in Germany.
Nevertheless, in 2020, the demand for office properties decreased in Germany, in particular in the large cities. In Berlin, 1,5% of office space was empty and 6,9% in Frankfurt. A similar trend can be observed in terms of rent prices. From 2018 to 2019, office rent in Berlin for example increased by 16% and 7% in Munich. In 2020, there was a decrease of 1,5% to 3% in all of the largest German cities in reference to office rent pricing.
As Covid-19 has led to flexible, hybrid ways of working options, in the near future, the demand for office space is likely to be weaker than in the past decade which will have a dampening effect on rental developments as well. Many companies are considering relocating to other locations. Families with flexible remote working schedules are rather looking for real estate investment outside of the cities now.
The manner in which real estate is sold has likewise changed during the pandemic. Virtual tours and online investment closings are gaining in importance as a result of travel restrictions for foreign investors or hygiene concerns on the seller and buyer side.
As mentioned above, before the pandemic, office properties were very popular with investors. In the course of 2020, the focus increasingly shifted to retail and logistics properties. With a booming e-commerce market in Germany, the logistic sector and the corresponding real estate is experiencing a surge in demand due to the expansion of global supply chains. To find out more about the German logistics sector read this industry overview.
German Real estate companies listed on the stock exchange
- Adler Group, a German real estate and property management parent company owns more than 400 individual companies managing more than 52,000 residential property units in Germany. These apartments amount to 3.2 million square metres of rental space worth €219.9 million rent annually. The majority of apartments are located in Lower Saxony, North Rhine-Westphalia and Saxony. The company has a strong history and tradition going back to the Frankfurter Adlerwerke company of the 19th century.
- Patrizia AG, the real estate investment company is based in Augsburg, Germany and listed on the SDAX stock exchange. Their global assets are worth €47 billion. More than 800 real estate specialists work in 24 international locations.
- Vonovia SE, is a real estate company based in Bochum, North Rhine-Westphalia providing housing and facility management for more than 1 million citizens. Vonovia owns more than 400.000 apartments in Germany, Sweden and Austria. The portfolio value is estimated at €58 billion.
- The German real estate company focusing on metropolitan regions, Deutsche Wohnen SE, gained public interest in 2020, as its stock was listing the DAX, consisting of 30 major German companies. The company owns 158.000 properties, with 70% of them located in Berlin.
- TLG Immobilien AG, specialises in office, retail and hotel properties. The current portfolio of the company is worth more than €3.7 billion and the majority of their real estate is located in the cities Berlin, Dresden, Frankfurt am Main, Leipzig and Rostock.
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