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Dr. ZitelmannPB.- Real Estate Stock Barometer Q2 2015: Less positive sentiment for real estate stocks
In its edition on 29.07.15, the HANDELSBLATT reported on the latest Dr.ZitelmannPB Real Estate Stock Barometer. Sentiment among real estate stock analysts is by no means edging into negative territory, but is no longer as strong as it was 12 months ago.
Anticipated stock developments
All real estate stocks
Commercial real estate stocks
Residential real estate stocks
over the next 3 months
0.4
0.7
0.2
over the next 12 months
0.7
0.8
0.3
The reputation of residential real estate stocks has managed to recoup some of the ground lost in Q1, whereas the almost euphoric mood surrounding stocks in commercial real estate sector companies has dampened since Q1. Analysts identify the greatest short-term potential for gains among the commercial real estate stocks, with the potential for residential stock gains viewed as minimal over the same period. The medium-term view of commercial real estate stocks is even more positive, with analysts’ expectations making them an even better value buy right now. Residential real estate stocks are also viewed as offering potential gains over the next 12 months.
The short-term sentiment indicators are down slightly from +0.5 to +0.4. Medium-term forecasts also see lower levels of optimism – against a generally positive backdrop for real estate stocks. Since the last survey, sentiment has weakened from +0.9 to +0.7. Sentiment is now at the same levels as one year earlier, the last time +0.7 was recorded.
While six of the nine analysts expect rising prices for German real estate stocks, three of their peers forecast stagnating prices. None of the experts expect stock prices to drop.
An index score of +2 would indicate that analysts expect to see price increases in excess of 15% over the next three months (short-term view) or twelve months (medium-term view). Conversely, a score of -2 would indicate that analysts expect prices to fall by more than 15%.
A third of the analysts surveyed anticipate price rises of between 5% and 15% in the next three months, one analyst even expects rises of more than 15%. An overall majority (four of the nine analysts) take a different view and expect to see no movement in stock prices in the short-term, with one analysts predicting slight declines. When questioned for the last real estate stock barometer, 75% of analysts predicted stock prices would climb.
The euphoria surrounding commercial real estate stocks has dampened down. Sentiment in Q1 had climbed to a relatively high +1.3. This quarters value of +0.7 can be interpreted as a normalization. Sentiment remains clearly positive: none of the analysts expects stocks to dip. At the same time, only one analyst was confident enough to forecast gains of 15% or more. Four analysts anticipate more limited gains while the remaining four predict a zero-sum game for commercial real estate stocks in the short-term.
A similar weakening of sentiment is recorded for commercial real estate stocks in the medium-term. Sentiment has slipped from +1.3 to +0.8. Nevertheless, seven of the nine analysts expect prices to develop positively over the next 12 months, while the other two predict prices holding at current levels. When surveyed for the previous index, three of the analysts had forecast substantial price gains over the following 12 months.
Residential real estate stocks: continuing the developments seen in the last index, sentiment related to residential real estate has improved slightly. As far as both short- and medium-term horizons are concerned, positive sentiment is running ahead. Sentiment improved minimally from +0.1 to +0.2 for the next three months. Two analysts anticipate moderate price rises, four predict unchanged prices and two expect prices to lose ground somewhat. One of the experts went as far as to forecast substantial short-term stock price gains.
The analysts’ assessments of medium-term residential stock developments was more-or-less identical. The barometer recorded an upswing in sentiment from +0.1 to +0.3. Prior to March’s survey, the medium-term index had remained constant for three quarters. Five of the nine analysts believe that stock prices will rise moderately over the next 12 months, two analysts predict no significant change, and two think that stock rices will suffer slightly.
The nine analysts offered different answers to the barometer’s final question. They were asked whether they foresee a change in monetary policy and interest rate rises any time soon. Five answered negatively, three believe that we are now on the cusp of a new policy direction and one found it impossible to make a prediction one way or the other. A majority (four of the nine analysts) pointed out that recent volatility in relation to Bund Futures is quite natural, especially given current high levels.
Moody’s warns of German real estate bubble
According to a report in the SÜDDEUTSCHE ZEITUNG on 24.07.15, Moody’s Analytics has warned of the risk of housing bubbles in Germany, Norway and Great Britain. The situation is largely a result of the European Central Bank’s current monetary policy. Rather than being used to fund job creation and long-term growth, the flood of cheap money is being used to buy real estate by investors looking for higher returns. In the period since 2010, property prices in Norway have shot up by more than 30%, Germany has seen increases approaching 25% and the average house is now worth almost 15% more in Great Britain.
Housing construction forecast 2001: The projections for 2015 that missed the mark
The 2001 housing construction forecast published by the Federal Institute for Research on Building, Urban Affairs and Spatial Development may have got many of its forecasts for 2015 right, but it was off the mark in a number of cases. As reported in the IMMOBILIEN ZEITUNG on 23.07.15, per capita living space was predicted to reach 42.7 square metres by 2015, extremely close to the actual figure of 43 square metres. The institute’s prediction of 3.4 billion square metres of residential space by 2015 had already been overshot as early as 2013, when the figure stood at 3.7 billion square metres. In estimating housing requirements, the 2001 study predicted that 327,000 new apartments would be needed per year by 2015. German government figures for the current year put the real number much lower, at 255,000. The fact that reality has diverged so much from the institute’s forecasts is mainly due to the difficulty of accurately predicting Germany’s economic development across the intervening 14 years.
Rent controls in 144 Bavarian towns and cities
Mietpreisbremse rent controls apply in 144 Bavarian towns and cities from 01.08.15, was the report in the IMMOBILIEN ZEITUNG on 23.07.15. This means that Bavaria is one of the first German states to implement the new Mietpreisbremse price brake. Rent controls were also a topic in the HANDELSBLATT on 23.07.2015, with a report on the results of the newspaper’s own survey showing that a further nine German states are planning to introduce rent controls by early 2016. Saxony and Saarland haven’t reached final decisions yet and Saxony-Anhalt and Mecklenburg-Western Pomerania have so far declined to intervene in their regional housing markets.
Investment in Frankfurt’s commercial real estate doubles
As reported in the IMMOBILIEN ZEITUNG on 23.07.15, investment in Frankfurt’s commercial property sector during H1 2015 approached €3 billion, almost double the previous year’s figures. Frankfurt is now one of Germany’s three largest commercial property markets. Transactions exceeding €100 million accounted for more than half of the total (€1.56 billion). 80% of the deals involved office properties. Savills reports current prime yields of 4.1%. This is ten basis points lower than during Q1 2015. Deutsche Office’s sale of the Westend Ensemble for €82 million to CG Gruppe was among the top nine deals of H1 2015.
Prime office yields slip again
The IMMOBILIEN ZEITUNG on 23.07.15 contained an article on BNPPRE’s report that core German office real estate yields have reached their lowest levels since they peaked during the last property boom. Prime yields in Munich have been squeezed to 4%, returns of 4.25% are reported for Berlin, and yields in Cologne are currently 4.6%. BNP Paribas Real Estate predicts that the yield compression seen so far will continue. BNPPRE forecasts rising investment volumes in H2 2015, particularly in the office property sector. 2015 could see transactions break the €20 billion barrier.
Cologne: Office space market set to grow
According to brokers at Greif & Contzen, Larbig & Mortag, and Savills, the turnover of office space in Cologne amounted to 135,000 square metres during H1 2015, representing growth of 8-9%. These figures were reported by the IMMOBILIEN ZEITUNG on 23.07.15. JLL arrived at a different figure, 128,500 square metres and a decline of 4%, whereas BNPPRE recorded 131,000 square metres and an increase of 15%. In H1 2015, Larbig & Mortag registered a total of 223 lettings compared with 226 during the same period a year earlier. Average rents rose from €11.72/square metre to €11.77/square metre, adding 0.5% in 12 months. Office vacancy rates varied between the 6.1% reported by JLL and 7.2% reported by Savills. Forecasts for the full year are generally positive, with Larbig & Mortag expecting turnover of 270,000 square metres and Savills more optimistic with 300,000 square metres.
Zabel: Russians are Berlin’s top luxury condominium buyers
Foreign buyers, including large numbers from China and Russia, are targeting Berlin. As DIE WELT reported on 22.07.15, “Many high net worth individuals from China are looking for apartments in Berlin,” said Thomas Zabel from the Zabel Property Group, specialists for luxury property in central Berlin. Eight per cent of Zabel’s clients are Chinese nationals, spending an average of €500,000 on a condominium in the city. Entire Chinese families are pooling their resources to buy German property as individual Chinese citizens are only allowed to transfer $50,000 per year outside their home country. “Chinese investors are very keen on property. At home, in major cities such as Peking or Shanghai, Chinese people are not able to own more than one condominium. So it’s no real surprise that wealthy Chinese investors are on the market for properties beyond China’s borders,” is Zabel’s take on their growing interest. Zabel’s largest single group of buyers comes from Russia and the former Soviet states. In order to serve these clients, Zabel has recruited agents from Moscow and St. Petersburg. “It’s not the oligarchs, it’s the educated upper-classes, and entrepreneurs with mid-sized companies, who are making Berlin their second, third, or even fourth home,” observes Zabel. His Russian clients spend an average of €1 million on a condo in Berlin. The most expensive property changed hands for €5.5 million. Buyers from Saudi Arabia, Kuwait and Israel have also been active. Only 30% of those interested in Berlin’s high-end properties were actually German. Zabel has not noticed any marked increase in Swiss buyers’ interest following the unpegging of the franc from the euro.
Zabel’s company brokered condominiums worth a total of €100 million last year, with this year’s figure expected to reach €140 million. Zabel is currently acting for 360 clients who have set their sights on a condominium worth €3 million or more in Berlin. According to Zabel, demand is running at a much higher level than supply. Most new build projects are fully sold before ground is even broken. This is the case for the latest Zabel project, Guardian, and its 134 condominiums. The apartments range from 40 to 180 m², with prices from €160,000 to more than €1 million. Half of Zabel’s foreign buyers intend to use the conos themselves, the other half view their new property as an investment asset.
30 new shopping centers in Germany by 2021
On 27.07.15, the HANDELSBLATT reported on a boom in shopping centre construction in Germany. A study by EHI Retail Institute reveals that there are not only more malls being built, but that they are also getting bigger. There are currently 469 German malls with leasable areas of more than 10,000 square metres. Over the next six years, mainly in Germany’s larger cities, at least 30 new shopping centers are in the pipeline. Centers built in 2013 had average leasable space of around 24,000 square metres, a figure that had risen to more than 40,000 square metres by 2014. The three largest shopping centers in the current pipeline are the Überseequartier in Hamburg (80,000 square metres), the Minto in Mönchengladbach (42,000 square metres) and the EKZ in Berlin-Charlottenburg (40,000 square metres). Six new centers have already opened this year and five more are due to open in Q3. 1.1 million square metres of new retail space is being added to Germany’s shopping centre landscape, bringing the national total to almost 16 million square metres. Owners of older shopping centers are coming under increasing pressure. According to Alexander Otto of ECE, around half of Germany’s shopping centers need to be modernized. The boom in shopping centre construction is being fueled by foreign investors. CBRE has calculated that international investors doubled the amount they pumped into German retail property in 2014 compared to 2013, with a total spend of €4.5 billion.
Germany’s commercial property market: No change in role of B and C cities
The role played by B and C cities in the commercial property market during Q1 remained more-or-less unchanged, reported the IMMOBILIEN ZEITUNG on 30.07.15. Despite increased investment in commercial property in cities outside the top seven in Q1 2015, B and C cities’ share of the overall market remained static. On the basis of figures compiled by Savills, approximately €5 billion of the €24 billion invested in real estate during the period went to the 14 cities classed as B cities and the 22 cities defined as C cities by bulwiengesa. This represents 20% of the market – the same proportion as in 2010 and 2011. According to both bulwiengesa und JLL, interest from investors in acquiring property portfolios, retail and logistic real estate in Germany’s B and C cities has grown. Engagements beyond the country’s largest metropolitan centers continue to generate the highest returns. Jan Linsin from CBRE reported yields of 4.4% for prime office space in the seven A cities, a spread from 5.3% to 6.5% in the B cities and roughly 6% to well above 6.5% in C cities such as Heidelberg, Kiel and Wuppertal. Unsurprisingly, Linsin expects that the C cities will see a rise in investment activity over the next three years.
Realbest on track for growth
As reported in the IMMOBILIEN ZEITUNG on 30.07.15, Realbest has successfully completed a second round of financing. According to Axel Winckler of Realbest, the real estate listings website collected a figure in the low millions. The company now intends to expand beyond its core Berlin, Frankfurt and Nuremberg regions and operate across the whole of Germany. As a result of its expansion, Realbest plans to widen its product range: Private sellers will be able to use the platform to market their properties and financial services will also be integrated into the site. The company’s fundamental business model will, however, remain unchanged. “We don’t view ourselves as an advertising channel, there are enough of those, but as a platform that facilitates contacts,” explained Winckler. Since its launch, the site has approximately 10,000 registered sellers and 2,000 registered estate agents. There are currently 600 real estate listings on the site. Just over a year ago, in April 2014, the number of listings stood at 115 and there were 300 registered estate agents. Backers of Realbest’s expansion include the IBB Beteiligungsgesellschaft. Rayk Reitenbach from IBB is convinced that Realbest has the potential to truly shake up the market.
Frankfurt’s hotel market is extremely attractive
Hotel investors are increasingly attracted to Frankfurt, reported the IMMOBILIEN ZEITUNG on 30.07.15 as it provided details of Dr. Lübke & Kelber’s Hotel Market Report 2015. With more than eight million overnight stays in the banking capital’s hotels, guest houses, bed and breakfasts and camp sites, a new record was set for the fifth year in a row. The number of new beds in Frankfurt trailed the rise in overnight stays. Project developers are working on the construction of new hotels. In 2014, Dr. Lübke & Kelber recorded the opening of five new hotels offering a total of 1,083 rooms. By May 2015, four new hotels had already opened their doors to guests. Five more openings are scheduled for the second half of the year. Investors are making the most of the expansion of the hotel market and growing demand: DRLK reports that seven Frankfurt hotels changed hands during 2014, with five more deals completed by June 2015.
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 Mainz
Mainz is the administrative capital of the federal state of Rhineland-Palatinate. It is also the site of a big university, so the public sector’s share in regional production is above average. In recent years, the service sector has grown robustly. Mainz is also a media town. Various broadcasting companies have a base of operations here, including ZDF, one of Europe’s giants in this industry. Reflecting the general process of structural change that has characterized developed economies in this era, the manufacturing sector, which specializes in industrial glass as well as paper and publishing, now records only a below-average share of total regional production. Johannes Gutenberg University, with more than 30,000 students, and several colleges offer a good research infrastructure. Further advantages of the area include good transport links and an attractive location in the Rhine-Main urban agglomeration, which has over 5 million inhabitants.
Feri rates Mainz as a business location “B+”, which is upgraded to the 2nd quarter 2014. It translates into “above average potential, below average risk”. With this rating result the city ranks 9th in the comparison of German B-Centers.
Office Real Estate
Regarding office real estate Feri rates Mainz “C”, which is unchanged compared to the 2nd quarter 2014. The city ranks 15th among office locations of German B-Centers. Feri awards the office top locations “B” and the side locations “C”
During recent years, the office real estate market in Mainz has performed well, despite overall weak demand. In particular, the inner city office market has shown a stable performance. The fact that Mainz’ volume of office space was not expanded in such massive dimensions as was seen, for example, in nearby Frankfurt helped support this relatively favorable situation. However, the augmented supply in surrounding cities has had some adverse effects on the development of rents for office space in Mainz’ suburban locations. Because Mainz hasn’t undergone any excessive expansion in its supply of office space, the vacancy rate here is still comparatively low. In the near future, rents are expected increase moderately.
Retail Real Estate
In the comparison of German B-Centers regarding retail real estate Mainz placed 8th with a rating result of “B”, which is unchanged compared to the 2nd quarter 2014. Feri awards the retail top locations “B+” and the side locations “C”.
Thanks to its well-preserved old part of town, Mainz is an attractive retail center, but for high-value consumer goods it is still under strong competitive pressure from retailers in neighboring Wiesbaden. Several projects, such as the conversion of the railway station and the construction of the “Roemerpassage”, which has a sectoral mix, have improved the central city’s attractiveness. In preferred inner city areas, the vacancy rate for retail space is low, with only marginal fluctuations. Mainz’ attractiveness as a shopping location has increased, which allures shoppers. Therefore a trend of moderately rising retail rents can be expected during the years to come. One of the major retail projects is an inner city Shopping Center, planned by ECE in the Ludwigstraße.
Residential Real Estate
When it comes to residential real estate, Mainz placed 7th among German B-Centers with a rating result of “C”, unchanged compared to the 2nd quarter 2014.
The most sought-after units on Mainz’ residential rental market are, above all, large apartments close to the city center. For this particular segment, demand far exceeds supply. Apart from this, students looking for favorably priced residential space provide another strong source of demand, so this segment of the market also exhibits a rather tight supply situation. The “Zollhafen” project might counteract this mismatch of demand and supply by developing 1,400 flats and creating 4,000 jobs on about 30 ha. In the near future, the total number of households – a key determinant of the degree of demand for rental housing units – is projected to continue rising. The share of small households with only one or two persons will increase. Thus, solid demand can be envisioned on the town’s rental housing market. The forecast points to continuously rising rents for both existing and new apartments.
The availability of building lots in Mainz is relatively high, compared to other cities of similar size. Thus, the supply of houses and condominiums in preferred areas such as Gonsbachterrassen should be augmented in the near future. Yet, despite plans for new building activity, various factors underlie the expectation that Mainz’ market for the purchase of housing property will develop positively in coming years. Mainz offers some of the lowest residential sale prices of any city in the Rhine-Main area, thereby attracting additional demand from neighboring Hesse. A strong income performance anticipated for the region further enhances these prospects. Thus, both houses and condominiums are expected to post rising prices. Another positive impulse could come from new projects proposed for the Rhine riverfront, which would make Mainz an even more attractive residential location.
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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