Why are investors heading to Germany?
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JLL research shows Germany has been 2015’s standout major market in Europe with third quarter volumes up 79 percent year-on-year to €13.5 billion. The country still ranks behind the UK on €18 billion for the same period but it is fast gaining ground. And the positive momentum is set to continue.
The German property market has long been the preserve of domestic investors but over the last year it has attracted more of international crowd. Half of the buyers of assets worth more than €100 million are now foreign compared with 20 percent in 2014.
Germany’s vibrant cities with their strong links to technology are just part of its allure. “Munich and Frankfurt have strong records of innovation and sustainability, which together with healthy economic growth and job creation provides a significant competitive advantage and is helping them attract inward investment,” says Frank Porschke, Managing Director, JLL Germany.
Another part of Germany’s appeal lies in its cheaper prices: As Europe’s largest economy properties come at a premium in terms of capital values but they’re still below comparative properties in London or Paris.
According to JLL’s latest City Investment Intensity Index, which measure the volume of real estate investment relative to the economic size of a city over the last three years, Munich ranks second behind London while Frankfurt comes in seventh place. “Frankfurt is Germany’s top cross-border investment market and the third most popular destination for foreign capital in Europe,” adds Porschke.
However, he recommends that investors look at German cities collectively rather than individually – especially with the strong transport links connecting them.
“We may not have huge cities like London and Paris but we have several very successful big cities,” says Porschke. “Sometimes I tell investors to think of Germany as one big metropolitan area. It can be quicker to move from Munich to Hamburg than from West London to East London.”
Who are Germany’s investors?
American private equity funds are particular fans of the rapidly evolving German market – accounting for more than a quarter of deals so far in 2015. However, the French aren’t far behind, making up 17 percent of deals and investing €2.4 billion in German real estate in the first half of the year, up from €1.7 billion for all of 2014.
Asian investors are also increasingly interested in the German market. Alastair Meadows, Head of JLL’s International Capital Group, Asia Pacific, JLL, says: “Korean investors are the most active in the region, but where other Asian capital sources are concerned we’re seeing more bidding than buying at the moment.
“Germany has become the second European destination of choice after London for Asian investors who are drawn in by attractive cash-on-cash returns driven by historically low financing costs.”
This article is published in collaboration with JLL Real Views. Publication does not imply endorsement of views by the World Economic Forum.
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Author: Rhian Nicholson writes for JLL Real Views.
Image: The TV tower at Alexanderplatz square during sunset in Berlin. REUTERS/Fabrizio Bensch
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