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Germany’s Listed Residential Property Companies Show High Premium on NAV
As the IMMOBILIEN ZEITUNG reported on 30 April, the stock trading prices of listed residential property companies rose much faster than condominium prices. The share price of Deutsche Wohnen AG, for instance, rose by 55% since October 2014, while the share price of LEG Immobilien climbed by 44% and the price of the Deutsche Annington stock gained by 39%. Bankhaus Lampe reportedly assumes that the listings now exceed their underlying net asset value (NAV) by 30% to 50%. Dr. Breuer Capital Market Advisory estimates that the premium across the sector may be as high as 30%.
“At the moment, investors seem rather undifferentiated in their willingness to pay a premium on listed residential property PLCs, and fail to distinguish between business models,” Andreas Segal of Deutsche Wohnen AG was quoted to have said. He added that companies preparing an initial public offering find the current price level quite exciting.
Rent Freeze to Enter into Force in Berlin on 01 June
On the first day of June, Berlin will become the first German state to introduce the rent control scheme nicknamed “the rent freeze,” as reported by DIE WELT on 29 April and by the FRANKFURTER ALLGEMEINE ZEITUNG on 30 April. The City Government was said to have passed an ordinance to that effect on 28 April. North Rhine-Westphalia could follow suit and become the second state to introduce the scheme. The ministry of construction let it be known that the State Government will ratify the rent freeze ordinance without delay. The ministry was confident that this would happen before 01 July.
The DMB German Tenant Union was moreover said to expect the rent freeze to be introduced soon in Hamburg and Bavaria, too. Also on 01 June, the “contracting-party-pays” principle will enter into effect.
Logistics Real Estate: Take-up of more than 1 Million Sqm in Q1 2015
As the IMMOBILIEN ZEITUNG reported on 30 April, the take-up for warehouse and logistics space in Germany remained voluminous during Q1 2015 at more than 1 million square metres. According to the paper, this is the gist of the data presented by JLL and BNPP RE. The estate agencies expect the take-up to exceed 4 million sqm by the end of the year. Out of the 1.08 million sqm that BNPP RE determined as quarter-end take-up for Q1 2015, new buildings accounted for nearly 55% (Q1 2014: 60%). The take-up that BNPP RE identified in Germany’s “Big 7″ cities was said to have declined to 520,000 sqm, a drop by 13% year-on-year. That said, the rental level has remained stable in nearly all regions. According to BNPP RE and JLL, the highest prime rents were once again registered in Munich at 6.50 euros/sqm.
As the IMMOBILIEN ZEITUNG noted on 30 April, Hamburg’s market for logistics and light industrial space was off to a slow start into the year, ending Q1 with a take-up of 85,000 sqm to 90,000 sqm. According to Grossmann & Berger, however, it would be premature to infer a slow market trend for the year as a whole from these quarter-end figures. Grossmann & Berger diagnosed an owner-occupier rate of 30%, which contrasts with the 27% identified by BNPP RE. Grossmann & Berger also found that the prime rent softened year on year, dropping by 10 cents to 5.60 euros/sqm. BNPP RE begged to differ as it reported stable prime rents of 5.70 euros/sqm. The short supply in zone land in Hamburg has stood in the way of accommodating the growing demand of owner-occupied manufacturing plants and workshops. Demand for logistics and light industrial space as investment product was so strong that it pushed core yields down to just over 6%.
Price Growth for Residential Real Estate
As the IMMOBILIEN ZEITUNG reported on 30 April, prices for residential real estate continued to go up in March. Compared to the same month last year, the Europace index was said to have risen by 6.48% to 120.03 points, while the residential index went up by 6.34% to 119.76 points and the index for newly constructed buildings by 5.53% to 129.11 points. The index for existing detached and semi-detached homes was said to have seen the fastest one-year growth at 7.74%, but continued to lag behind the other indices at 111.22 points. The overall index rise by nearly 25% over the past five years, the paper added.
Cologne: Rise in Condominium Prices
According to the CityReport Wohnen by Corpus Sireo, as discussed by the IMMOBILIEN ZEITUNG on 30 April, condominiums in Cologne were subject to a price hike last year. The report suggests that condominium prices in the city saw an average one-year growth of 10.9% in 2014. The asking price average was quoted as 3,600 euros/sqm for new and 2,300 euros/sqm for existing apartments across the city. Matching historic patterns, condominium prices were highest in the districts Altstadt-Nord and Braunsfeld, with peak prices as high as 4,000 euros/sqm. According to the IVD Federal Investment and Asset Management Association, the prices paid in Cologne’s downtown district of Altstadt Nord are often the highest anywhere in North Rhine-Westphalia (Cologne being the most populous city in that state).
Recommended Reading – by Dr. Rainer Zitelmann
Myths about the Way to Wealth
Farrah Gray, Get Real, Get Rich: Conquer the 7 Lies Blocking You from Success. New York, Dutton, 2008, 272 pages
There is no lack of books about how to get rich. Whenever I pick up a new book on the subject, the first thing I want to know is whether or not the writer is living proof that his or her advice actually works. This is certainly the case with Farrah Gray. An Afro-American, he grew up as the youngest of five children raised by a single mother in the impoverished south side of Chicago. However, Gray overcame the odds to become a millionaire by the age of 14. The National Urban League’s “Urban Influence Magazine” recently named him one the most influential Black men in America.
In this book, he seeks to debunk seven “lies” about getting rich. On a less dramatic note, I would prefer to call them misconceptions, because rather than representing wilfully disseminated untruths, they are simply wide-spread myths. What sort of myths does Gray have in mind though?
Myth no. 1: “You have to be born with connections or with special talent to be rich.” To refute the “Born Lucky Lie,” Gray argues that it is all about the law of probability. What he means is that you need to increase the number of occasions for meeting people; you need to build up a network and to open doors. No matter whether you are looking for a partner or wish to set up a business – no one will come and knock on your door. The key to success, he argues, lies in volume: How many times did you try? How many rejections did you get before you were accepted? How many times did you start all over again, and took an entirely new approach? Gray believes that “the concept of being ‘at the right place at the right time’ is a complete and utter falsehood.” Rather: “You need to be everywhere at once.” He adds that you should always look at your life from the angle of the law of probability. The more you are willing to meet people half way, the higher the chance that you will get what you want. To back this theory, Gray cites many examples from his own life and the lives of others. I personally would call it “the law of large numbers.”
Myth no. 2: “I have to work hard and make sacrifices to be rich.” The way Gray sees it, hard work is a name for the kind of work you hate doing – and this is no way to get rich at all. As he explains, the point is not to simply labour more, but to do that which most matches your skill set, and where your chances of excelling are highest. To find out what these are, you should try to answer three questions: What is easier for you to do than for others? What would you do any time and in any case, even if you did not get paid for it? In what ways could you make yourself useful and do something for others?
Myth no. 3: “I have to hit it big in entertainment or sports to be rich.” Many people are blinded by a handful of celebrities that are fêted by the media. In truth, Gray observes, there are countless people who are completely unknown outside their field but who make much more money and who have amassed much bigger fortunes than the few stars everybody knows.
Myth no. 4: “You must first have money to make money and get rich.” This so-called “Money Lie” is particularly popular among those whom financial success keeps eluding. People who unexpectedly come by large amounts of money tend to lose it just as quickly, and Gray illustrates the point by citing two examples: One is the case of Evelyn Adams who won the lottery jackpot in New Jersey not just once but twice (1985, 1986), collecting a total of 5.4 million dollars. Today, the money is gone, and she lives in a trailer. The other case is William “Bud” Post who won 16.2 million dollars in Pennsylvania and who is on welfare today. Conversely, there are a much larger number of people who started out with just a few dollars, or actually used their credit cards to finance their first steps as entrepreneurs, and got rich anyway.
Myth no. 5: “I have to have zero debt to be rich.” Rather, Gray argues, the opposite is true: You need to borrow to get rich. You should employ borrowed capital to build a fortune. The one thing you need to remember is to distinguish between bad debt (consumer debt) and good debt (debt used to finance a let property or a business).
Myth no. 6: “I have to be super smart or invent something the world relies on to be rich.” While the stories of Bill Gates, Steve Job, Sergej Brin and Larry Page are exciting, as he admits, they can also lead you down the wrong path. No one needs to aim as high as Microsoft or Google. Rather, there are any number of opportunities to build a fortune in certain niche sectors. Gray illustrates his points with several spellbinding accounts, one being the story of Tina Wells. Aged 26 at the time the book was written, she is the head of Buzz Marketing Group in New York, a company that has conducted market research among the younger generation on behalf of other companies for the past eleven years. She started out at 16 when working for the teenage magazine New Girls Times and writing her first reports about products aimed at young consumers. Tina exploited her own fascination with fashion and pop culture to identify a gap between the desires of the teenagers and the misguided products and services developed for them by many companies. When she started to submit her reports and proposals directly to the respective companies, she got an overwhelmingly positive response. Today, her company makes 3.3 million dollars in revenue, and counts renowned companies like Nike or Sony among her clients.
Myth no. 7: “I have to know a lot about the stock market or work on the Street to be rich.” Gray counters that investment returns are precisely not coming directly from Wall Street but are based “on your knowledge and your preferences.”
He argues that self-esteem and coping skills are what really counts. Gray cites an interesting survey among 500 leading CEOs in the US. These, as it turns out, have more self-esteem than 90 percent of the general public. They also turned out to be better at solving problems and generating ideas than 92 percent of the US population.
For more reviews of interesting business books, see Zitelmanns Book Reviews
GERMAN REAL ESTATE NEWS
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Feri Real Estate Market Rating
The Feri Real Estate Market Rating provides a forward-looking assessment of potentials and risks for investment return on regional real estate markets. Ratings are based on detailed econometric forecasts of regional real estate markets including regional economic development. The rating currently includes more than 150 cities in Europe, in the United States and in Asia.
In this issue:
Real Estate Market Rating for Regensburg
Regensburg is traditionally an industrial center, and the output share of its industrial sector remains far above average. The region’s industrial sector is most strongly focused on vehicle assembly (BMW AG), machinery production, and electrical engineering. For the most part, these enterprise segments have sustained quite a good performance in recent years. This comparatively strong showing by the industrial sector is favorably distinguishes Regensburg from many other industrial regions, as during this recent period, the industrial sector as a whole faced severe adjustment pressure, and industrial activity declined notably in many locations. Meanwhile, Regensburg’s service sector has also been steadily gaining importance. With a university and colleges, Regensburg offers a favorable research infrastructure. Over the medium term, Regensburg’s proximity to newly opened, expanding markets in Eastern Europe will confer a further economic advantage.
Feri rates Regensburg as a business location “A”, which is upgraded to the 1st quarter 2014. It translates into “high potential, low risk”. With this rating result the city ranks 4th in the comparison of German B-Centers.
Office Real Estate
Regarding office real estate Feri rates Regensburg “B”, which is upgraded to the 1st quarter 2014. The city ranks 13th among office locations of German B-Centers. Feri awards the office top locations “B” and the side locations “B”
In recent years, the office vacancy rate has risen less notably in Regensburg than in many other regions. New building activity has been limited, and particularly so for speculative projects. Currently the economic development causes decreasing office rents, especially in the suburban segment, while rents in the inner city are rather stagnating. In coming years, provided the anticipated economic recovery takes hold, Regensburg should continue gaining importance as a center of service sector activity – a trend that will animate demand for office space. In this context, both inner city and suburban office rents are forecast to rise quite steadily.
Retail Real Estate
In the comparison of German B-Centers regarding retail real estate Regensburg placed 16th with a rating result of “C”, which is unchanged compared to the 1st quarter 2014. Feri awards the retail top locations “C” and the side locations “B+”.
Regensburg is a regional retail center with an attractive city center, but its retail shops face strong competitive pressure from the “Donau-Einkaufszentrum,” the “Alex- Center,” the “Regensburg Arcaden” and other peripheral shopping centers. The major adverse impact that largescale development of peripheral shopping centers had on top retail locations in Regensburg’s city center can be seen in a long-term tendency toward declining rents. Rents have also performed poorly, at times, due to restrained consumer spending during cyclical economic downturns. Nonetheless, rents for space in Regensburg’s best retail locations seem to recover. In coming years, rents for space in both top and secondary retail locations are expected to rise modestly.
Residential Real Estate
When it comes to residential real estate, Regensburg placed 11th among German B-Centers with a rating result of “C”, upgraded to the 1st quarter 2014.
Regensburg’s rental housing market exhibits a bifurcated performance. For large, modern apartments, especially in preferred inner city districts, demand exceeds supply. Conversely, smaller, ordinary apartments draw just minimal demand. Overall, rents for both new and existing dwelling units in Regensburg have mostly risen in recent years. Moreover, supply is currently tightening due to low new building activity in the multifamily housing segment. This combined with a continuously rising number of households, supports a projection that rents for both new and existing apartments in Regensburg will continue to increase during the years ahead.
On Regensburg’s residential sales market prices developed weakly in all segments for a long time. But in recent years, the supply surplus that had prevailed for over a decade finally showed signs of being absorbed. The outlook is quite optimistic for the years ahead, based on projections for low new building activity, positive demographic development in the region, and a growing trend of investment in residential property as a retirement-age financial security strategy. This will lead to sale prices in all residential segments to rise. A city program to make housing space available for families designated a number of building lots for both single-family houses and town houses is an effort to support this development.
Contact:
Franz Wolfgang Kubatzki, wolfgang.kubatzki@feri.de, phone +49 (0) 6172 916-38 11
Feri Real Estate Market Rating
The “Feri Real Estate Market Ratings” issued by Feri appraise the value potential of regional real estate markets, taking into account the attendant risks. The methodological approach underlying Feri Real Estate Market Ratings is rooted in the empirical observation that the performance of a given real estate market depends essentially on the economic power of the respective city. Before this background, Feri develops a separate prognostic model for each city, mapping the regional economy as a system of independent equations.
For the purpose of compiling its ratings, Feri uses a detailed regional forecast to analyse the socio-economic development, the economic structure, as well as the ten-year indicators specific to the respective real estate market. The forecast findings are evaluated using a mathematical rating algorithm.
The objective behind the ratings is to make the markets more transparent, and thereby to support pending investment decisions of private and institutional investors. Feri ratings are updated on a quarterly basis, and are currently available for 67 German cities and counties, as well as for 60 European cities outside Germany, and 45 cities in the United States.
Feri EuroRating Services AG
Feri EuroRating Services AG is a leading European rating agency, specializing in the analysis and valuation of investment markets and investment products. Feri is also a major economic research and forecasting institute. At present, Feri employs a staff of around 60 professionals to manage about 1000 customer accounts. The company is headquartered in Bad Homburg near Frankfurt, Germany, with sales offices in the United Kingdom, France, and the United States. In addition to its global industry analyses and ratings of companies, countries, capital and real estate markets, Feri regularly appraises the investment funds registered in each country. Annual market surveys on institutional and mutual funds as well as on closed-end participations provide an overview of the perspectives and actions of institutional investors. In the real estate sector, Feri conducts global real estate research, performs real estate valuations, and provides ratings of companies, REITs, real estate, real estate portfolios, and indirect real estate investments (open-end and closed-end real estate funds).
For more information on Feri EuroRating Services, please go to http://fer.feri.de/en/about-us/portrait/.
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