EXPO Real: Back in the game

With a record 41,000 – largely German – delegates in attendance, for any Brits at this year’s EXPO Real 2017, it felt more like an away soccer match in front of a partisan crowd. But while English football teams have long been unable to compete with their technically-superior German counterparts, in real estate terms, the two countries have been more evenly matched, with the UK even ruling the roost in recent years.

All that changed last summer following the UK’s EU referendum vote, prompting investors to reconsider whether British property was still a safe haven for international, institutional capital.

At this year’s EXPO, even more so than last year, German confidence that the country’s property would be the main beneficiary of Brexit was palpable, as was the belief that overseas’ capital would continue to flow into its property markets.

Data published last November by Real Capital Analytics showed that, for the first time in four years, Germany eclipsed the UK as the most popular destination for property investment in Europe. In the third quarter of 2016 alone, some €13.6 billion flowed into German real estate against €10 billion to the UK.

The reason for this shift was clear for Jan-Willem Bastijn, head of EMEA capital markets at Cushman & Wakefield, who pointed to the fickle nature of capital. “Investors will change direction overnight, and Brexit was the most recent event which changed the direction of travel for investors,” he said.

Andrew Stainer, head of global asset management at AXA IM – Real Assets, added that the appeal of German real estate was certainly boosted by Brexit: “The market has been driven by negative sentiment coming out of the UK and has had a positive impact on Germany as an investment market. For the time being it looks attractive.”

Investor attraction to Germany continued apace this year and was highlighted at EXPO by a report from property services firm Colliers International, which revealed Germany had ousted the UK as the most active market in Europe in H1.

The data found that with €33 billion invested – a 34 percent increase year on year – Germany was top dog in Europe. The increase was attributed to several major portfolio sales, totalling around €8.5 billion, most notably the disposal of the OfficeFirst portfolio by Bonn-based property company IVG Immobilien to New York powerhouse Blackstone for €3.3 billion.

Speaking during an EXPO discussion panel on overseas investment into Germany, Christian Ulbrich, global chief executive of property services firm JLL, was bullish about future investment in Germany too, while suggesting one driving force was the sheer number of disappointed, yet undeterred, bidders.

EXPO Real 2017: a record-breaking year

Delegates: 41,500 – a record

Delegate countries: 75 – a record

Exhibitors: 2,003 – a record

Exhibitor countries: 35 – a record

“There will not be a slowdown of investors coming to Germany – capital is coming from everywhere,” Ulbrich said. “The Asia story has been compelling; we have seen huge investment from that region. Hong Kong and Korea, which has been buying and selling, have been very active. While, the Japanese will play a much more dominant role in European real estate in the future.”

“Under-bidder lists are getting longer and longer so once firms have been disappointed by two or three failed deals, you can be certain they will return and return in a far more aggressive manner.”

Georg Jewgrafow, chief executive of Bayern LB-owned property manager Real IS, agreed. “Bid-to-hit ratios for German assets have worsened as competition has grown. “If you had 200 opportunities to bid, the hits might be 10-15 percent,” he said.

SCARCITY OF BIG PORTFOLIO SALES

Behind Germany in Colliers’ ranking was the UK with €29.5 billion of investment in H1 this year – a 13 percent reduction compared with the same period last year, but €1.5 billion higher than in H2 2016.

The UK was hampered by a scarcity of major portfolio deals, the report found, the largest of which was the €850 million Aviva Airport deal. However, with five major portfolios closing in Q3 to date, a further €3 billion will be added to the UK’s total, including the recently announced £1 billion ($1.3 billion; €1.1 billion) Patrizia-Oaktree office portfolio sale.

Aside from Brexit, another factor propelling Germany to the front of investor queues in Europe is its “distribution diversity,” said delegates.

“We were early in the German market. The first thing we were drawn to was the polycentric nature of the market, unlike the UK, France or the Netherlands, where quality assets are very difficult to find outside of the capital,” said Bruce Traversy, head of investments at Toronto-based Dream Global.

FLYING HIGH

In a further show of German technical superiority, Allianz Real Estate held a live drone-flying demonstration to highlight the ways the technology can benefit the real estate industry.

Allianz has invested in Munich-based drone provider Fairfleet360 and the firm’s business development manager Alexander Engelfried was on hand to talk delegates through the live stream which saw its pilot-in-residence Dario Manns fly a drone around Allianz’s Warsaw Financial Centre, in the Polish capital, for around 30 minutes.

Fairfleet360 said its drone technology has been used to survey, inspect and market real estate assets. The firm said it has become increasingly popular with property companies keen to show off their cutting-edge approach to investors.

In fact, the pack mentality of German cities was also reflected in Colliers data. “German cities form six of the top 12 destinations for capital in Europe, and eight of the top 20,” said Richard Divall, head of EMEA cross border capital markets at Colliers. “The ‘distribution diversity’ this presents, alongside the ongoing economic and regulatory strength of the economy, should help drive another successful close to the year and offers a strong outlook for 2018.”

Nevertheless, while Germany’s major cities bestrode Colliers’ city ranking, the list was still topped by London. The UK capital has received around €15 billion in investment this year, almost triple the volume of second-place Paris, thanks to billion-pound-plus deals for the Walkie Talkie and the Cheesegrater buildings.

Despite the German resurgence over the last 12 months, Divall also said that, based on transactional evidence, the UK had clawed back ground on its real estate rival in Q3 and predicted a “photo finish” once H2’s volumes are known.

To those Brits in attendance at EXPO, the very notion of a tie with the Germans would send shudders down their spines. As all soccer fans know, the deciding factor would be the dreaded penalty shoot-out and England never win those.