Strong half-year volume following further consolidation on the commercial residential investment market

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FRANKFURT, 4th July 2018 – Further consolidation measures took place on the German commercial residential investment market* in the second quarter of 2018 following the acquisition by Austria-based Buwog in the first three months of the year. For instance, Adler Real Estate acquired 70% of the shares in the residential portfolio of Israel-based Brack Capital for some €700 million, while also selling a portfolio to its joint venture with Benson Elliot for about €115 million.
 
The consolidation process, the transactions in the micro residential segment and more than 200 smaller transaction each with fewer than 800 residential units generated a total sum of €11.3 billion in the first half of 2018. This means that more than 70% of the previous year’s volume has already been achieved after six months. The five-year average for first half-years was exceeded by 35%; the ten-year average by as much as 95%. A total 83,900 residential units had changed hands by the end of June 2018.
 
Dr. Konstantin Kortmann, Head of Residential Investment at JLL Germany, said: “Beyond the major deals and consolidation measures mentioned above, the profiles of portfolios are becoming increasingly differentiated. They either serve a specific sub-segment, as shown by the micro-apartment transactions at the beginning of the year, or they have fairly homogeneous risk profiles in the way they are structurally designed.”
 
Helge Scheunemann, Head of Research at JLL Germany, added: “The importance of forward deals remains at a high level. Around 30% of the transaction sum was realised from project developments sold prior to completion. On average, prices of more than €4,000/sqm were achieved — more than twice as much as for existing portfolios and properties, which were traded at around €1,700/sqm.”
 
“Investors remain under enormous pressure to invest. Many insurance companies and pension funds are still under-invested in the real estate market. At the same time, long-term government bonds are expiring and capital is being released, which in turn must be invested at least with a focus on value retention,” said Kortmann.
 
Thus in terms of direct property investments, the buyer group comprising banks/insurance/pension funds invested more than €1.4 billion net in residential real estate. At the same time, indirect investments through various fund vehicles registered a stable influx of capital with net asset growth of more than €1.2 billion; they have already reached 70% of the average five-year inflow. In particular fresh capital has been injected into numerous special funds by investor pools of insurance companies and pension funds.
 
As before, however, the listed residential property groups invested by far the most in residential real estate: by the end of June, their additional residential property assets amounted to a total of more than €3.2 billion.
 
Although many listed residential property companies and funds have international investors, the commercial residential investment market is still dominated by domestic investors. As things stand, they have accounted for 80% of the transaction volume for several years. By mid-2018, three-quarters of the capital invested from abroad was attributable to three countries: the United States (€600 million), the United Kingdom (€580 million) and Singapore (€350 million).
 
Berlin still attracted the most capital in the first half of the year, accounting for 15% or €1.65 billion, followed by the Frankfurt-Rhine-Main area. The €920 million invested here already exceeds the volume for the entire previous year. Hamburg, meanwhile, achieved three quarters (corresponding to €750 million) of its 2017 volume by the middle of the year. In both regions, the proportion of high-priced forward deals is at a very high level.
 
“Given the short supply of good stock in Germany, the major German residential property groups are pursuing other routes to achieve growth,” said Konstantin Kortmann.
 
For example, Vonovia, the largest German owner of housing stock, is pushing ahead with its international growth strategy. Following its investment in Austria, the company acquired the Swedish housing company Victoria Park in the second quarter.
 
Other market players are focusing on alternative options in Germany, perhaps with their own project developments or by participating in such investments. This applies, for example, to Adler Real Estate in Europacity in Berlin and Deutsche Wohnen in Potsdam.
 
Kortmann concluded: "At this stage, further mega deals are not expected before the end of the year. Due to the many forward deals, numerous portfolio adjustments and individual transactions, the investment volume on the commercial residential market will nevertheless achieve an outstanding result of €17 billion-€18 billion in 2018. This would then be 10% more than the volume recorded for the previous year, and could be enough to achieve second place in the long-term investment statistics for the commercial housing market.”


* Sale of residential portfolios and student residences with at least 10 units and 75% residential use as well as the sale of company shares with the acquisition of majority control without a stock market listing