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News Release

Frankfurt

The fact remains: the transaction volume is lower in the residential portfolio market due to the lack of mergers

Welcome activity in the project development market and specialised residential property segment


​Press release including chart [PDF]

 

FRANKFURT, 7th July 2016 - Although the transaction volume in the market for residential portfolio investments increased by €300 million between the first and second quarters of 2016 to reach €2.3 billion, the combined result for the first six months of the year of €4.4 billion and 42,000 apartments was a considerable reduction from the result for the corresponding period in the record year 2015 (-75%), and it was 50% below the 5-year average. It was the weakest half-yearly volume recorded since 2011. Once again, there was a distinct lack of large-scale transactions. By the mid-year point, the five biggest transactions had generated a mere €690 million, light years away from the €12.7 billion recorded in the first six months of 2015. Even the number of transactions provides no reassurance. With less than 200 sales, the number of deals was in double digits, but far wide of the mark when compared to the number of transactions concluded during the corresponding period in 2015 (-17%). There is a clear trend towards smaller transactions this year: the current average portfolio size is 224 apartments, which is almost 70% below the 5-year average. 
 
"A number of different trends are currently being observed in the residential transaction market. On the one hand, sub-portfolio and properties which do not fit into a company’s general strategy are currently being extricated from the holdings of the merged housing companies. An example of such restructuring deals includes the first quarter sale of more than 1,000 apartments from the former Gagfah portfolio by Vonovia to the asset manager Noctura and a private trust ", commented Dr. Konstantin Kortmann, Head of Residential Investment at JLL Germany. Moreover, the completion of almost 25,000 apartments, the highest number of apartments since 2006 according to the Federal Statistics Office, shows that demand remains strong for new apartments, which is having an impact on the project development market. "There has already been a sharp rise in the number of forward deals to institutional investors in recent years and this segment now accounts for almost a quarter of all transactions", continued Dr. Kortmann. More than €1.2 billion and therefore 30% of the total transaction volume was invested in project developments in the first six months of 2016, and this is already more than half of the result for the whole of 2015 (and includes the acquisition of the residential element of the Box-Seven new-build district with more than 200 apartments in Berlin-Friedrichshain by Patrizia in April, with completion expected by 2018). "The trend of transactions of micro apartment buildings and private student apartments with attractive returns also continues", according to the housing experts. Between January and the end of June, more than €300 million was invested in this special segment. One highlight was the acquisition of the Headquarters Portfolio with approx. 1,000 student apartments in four of Germany’s university cities by the British investor GSA, which is looking to gain a foothold in the German student accommodation market.

 
Even the residential market is becoming more international
 
In the first half of the year, the proportion of the total capital invested by international investors in the German residential market increased to almost 25% (H1 2015: 13%). ‘It can be speculated whether the reputation of Germany’s residential investment market as a safe haven will strengthen further in response to the Brexit decision, especially in the case of investors from Asia, thereby leading to a further rise in the proportion of international investors in the market’, suggests Dr. Kortmann. However, the fact remains that in times of crisis and relative insecurity, investors tend to focus on low risk and defensive investment opportunities. "Without doubt, German residential property falls into these investment categories."
 
The attractiveness of the German residential market has been evident for many years, not only from the rise in rents, but also and in particular from the increases in purchase prices in the major cities. Average purchase prices for commercially traded apartments and residential portfolios rose to over €100,000 per apartment in the first half of the year. In comparison, the average price was less than €60,000 per apartment just five years ago. In the case of a forward deal however, the calculated price can even rise to €250,000 per apartment, an increase of 30% since 2011.
 
"In terms of the reduction or accumulation of property holdings through acquisition and disposal, German special funds were the most active in their investments in the first six months. Many institutional investors are using this approach to invest indirectly in real estate", explains Helge Scheunemann, Head of Research at JLL Germany. This vehicle was responsible for almost €1 billion of wealth creation in the aforementioned period, a considerable increase compared to 2015. ’At just less than €950 million, the volume of wealth created by asset and fund managers is more remarkable given that a volume of €11 billion (net) was disposed of in 2015. Even these investors clearly benefit from the inflow of funds from institutional investors in the search for higher performing yields than offered by government bonds’, notes the head researcher.                                                                     
Berlin is and remains the destination for residential investments in Germany. A quarter, or more than €1 billion, was invested in the German capital, followed by Hamburg (€320 million) and, surprisingly, Leipzig (€280 million). The latter was due to a number of smaller transactions and to the re-acquisition of a portfolio by a Leipzig housing company.
 
"In view of the low transaction volume in the first half of the year, it is necessary to correct the outlook for 2016 downwards", adds Mr Scheunemann. He continues "and this, despite the continued rise in the attractiveness of the German residential investment market for international investors and the sustained boom in the sale of project developments and specialised residential properties on one hand, and the fact that the consolidation phase has only just started in terms of the recently merged portfolios on the other.  A transaction volume of up to €10 billion should be achieved over the year as a whole in any case."

 
* Sale of residential portfolios and student residences with at least 10 apartments and 75% residential use, and the sale of
company shares including the takeover of majority control but without IPO