The Germans among you might be meandering about the myriad exhibitors at the Messe München with a spring in your step. After all, as far as international, institutional property investors are concerned, Germany’s major cities are now considered the region’s safest havens after the British vote to leave the European Union saw the UK’s credentials questioned, right?
That was a prevalent attitude at PERE’s Germany Roundtable featuring in this magazine. Judging by the participants’ comments, Brexit should precipitate even greater demand for German real estate than before. As the roundtablers suggest, the only thing that could prevent a greater transaction volume in 2016 than the €50 billion of deals registered last year is a scarcity of prime property.
But, according to the latest research by advisory firm JLL, the €18 billion of deals transacted in Germany in H1 2016 was a 25 percent drop on the same period last year and was “primarily because the supply of properties was far from adequate”. In light of the country’s monetary policy, an even greater slug-out for core properties in the quarters to come is almost certain, with historically low investment yields – 3.4 percent was mentioned at the roundtable – weighed against negative bond rates.
Whether greater quantities of capital decides venturing beyond core within Germany is a greater bet than continuing to back London post-Brexit is another matter. The roundtable considered the potential €3 billion-plus sale of the embattled office portfolio OfficeFirst Immobilien to Blackstone’s opportunistic funds a yardstick with which to measure current institutional appetite for the country. Blackstone, for its part, has not invested a single opportunistic dollar in the UK in 2016, even after Brexit.
The fallout from the vote may yet to be fully realized, but the initial impact of the run on the UK’s open-ended funds abated with little contagion to other parts of the country’s market. Two of the seven funds which closed to redemptions in July, those of Canada Life and Columbia Threadneedle, have already lifted their gates; their sales averaged a 7 percent discount, but even that haircut is no longer needed. Columbia’s sales, in fact, averaged a 1 percent discount. Perhaps the Brits at EXPO can be forgiven a little spring too as their market retains its haven status, at least for now.