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It Makes More Sense to House Refugee Families in Rural Regions
According to the study “Rural Families – Part 2″ published by EMPIRICA AG, approximately two million applications for asylum are expected to be made in Germany between October 2015 and the end of 2016. Assuming that 40% of these asylum seekers will eventually be granted permission to stay in Germany, this would mean that the country’s population is set to swell by 800,000. According to the study’s figures, 60% of those seeking asylum are families. If these families, with an average 2.9 people per household, are to be housed, an extra 280,000 family-friendly apartments are needed across the country. This is equivalent to a full year’s housing construction, although the only regions currently suffering from a shortage of housing are Germany’s growth regions. In areas where the population and economy are either shrinking or stagnating, vacancy rates remain high (the 2011 census put the figure at 1.7 million unused apartments). The study recommends making better use of existing housing stock and improving the way in which asylum seekers are distributed throughout Germany. The current approach takes no account of family structures, which has led to families being squeezed into densely populated large cities while single men are often being sent to villages in rural areas, neither of which is conducive to positively integrating refugees into their new communities. As 45% of Syrian households used to live in rural areas in their homeland, they benefited from clear and functional social structures and close contacts within their communities, all of which could be replicated in Germany. The likelihood of finding employment in rural areas is also higher. Nevertheless, a “diaspora effect” could create problems. Once asylum seekers have had their applications for permanent residence approved, they tend to choose to live in big cities where there are already large and established communities of their countrymen and women. In order to prevent this, it might be worth considering temporary measures to restrict refugees’ freedom of movement, similar to laws that applied to ethnic German immigrants during their first three years in the country (Wohnortzuweisungsgesetz). This would extend the time available to integrate the families into rural communities. The need to construct new housing in Germany’s growing cities is clear, but in relation to the immediate influx of refugees, it doesn’t really present a solution. Building housing just for refugees is a fundamentally flawed approach, although short-term tent and container villages, along with other basic forms of housing, are required to meet short-term needs.
Real Estate Forecasts: Germany Is Not Going to Shrink
By Dr. Rainer Zitelmann
Germany is going to shrink. This assumption has been the basis of all long-term real estate market forecasts for almost as long as anyone cares to remember. For decades we have been listening to a stuck record; again and again we have been told, “Ten years from now the population of Germany will fall below 80 million.” And the forecasts have never been right.
The largest uncertainty in any demographic forecast is the assumption made regarding net immigration. All of the major forecasts are based on net immigration forecasts of between 100,000 and a maximum of 200,000 per year. I’ll say it again: ALL long-term real estate forecasts are based on these figures.
And yet this is by far and away the least likely scenario. Over the last few weeks I have led countless discussions on this topic. The arguments that have been raised in response are:
At the moment, it is impossible to make any predictions about future immigration figures.
Everyone knows that forecasts are never right on the money.
To 1: Of course, no one knows exactly how many immigrants will make Germany their home. But does this mean that we should continue to rely on old forecasts that are based on figures of 100.000 to 200.000 new arrivals per year? And if so, why? Just because they are old? Just because we don’t dare to make any forecasts of our own? It is absurd to use patently unrealistic assumptions simply because it is difficult to arrive at alternative, more plausible assumptions. If the assumptions we have been relying on for so many years are to be correct, all immigration to Germany would have to stop for the next ten years, particularly as net immigration over the last few years has amounted to 400,000 per annum, double the much toted forecasts.
To 2: We are not talking about 100% precision or slight variations. We are talking about whether the forecasts have got things right in general terms. And this is exactly what I have been arguing: These forecasts are way off beam. There is no way that Germany is going to shrink over the next few decades.
I do think that it is extremely unlikely that immigration will remain at current levels. If it does, there is a danger that German society will implode. You can already observe the panic that has set in. Asylum laws are being amended on the hoof and every effort is being made to undo the damage caused by Angela Merkel’s euphoric open doors policy. The assumption that 1-1.5 million refugees are going to arrive in Germany every year for the foreseeable future is just as unrealistic as the idea that net immigration figures will sink back to between 100,000 and 200,000 anytime soon.
After all, it doesn’t look as if any of the problems that have led to the recent explosion in refugee numbers are close to being solved. It’s also highly unlikely that any of the people smugglers are about to abandon their highly lucrative criminal enterprises. And how realistic would it be to expect other European leaders to align themselves and their countries with Angela Merkel’s “Willkommenskultur”? Does anyone really think that Great Britain, Hungary or Poland are about to open their arms to millions of immigrants? And how likely is it that the EU is either willing or able to turn Europe into a “fortress” with well-secured external borders?
It is possible that their will be restrictions placed on the number of family members allowed to join their relatives in Germany. But this doesn’t alter the fact that large numbers of family members will still come. And those that do end up staying are likely to have more children than their German peers who, as we all know, have one of the lowest fertility rates in the world.
I call on everyone who is involved in producing real estate market forecasts to develop new scenarios. And I’ll say it once more: Keeping faith with existing scenarios simply because it is difficult to develop new models is an entirely questionable justification.
Otherwise, we should all be honest with ourselves and suspend the use of all of our existing real estate market forecasts. But would that really solve anything? Would we know any more in six months than we do now? And how about in twelve months? Every long-term investment decision is based on forecasts – whether explicit or implicit. What we urgently need are forecasts – for the real estate industry more than any other. After all, so many of our investments are based on long-term investment horizons.
Leading experts from a range of institutions will be joining us to discuss these topics at the REAL ESTATE ROUNDTABLE on 10 December. I have rarely been as intrigued by an upcoming event as I am by this one. Please request your programme today by sending an email to: info@immobilienrunde.de.
Read also Rainer Zitelmanns Finance Blog.
Record Year Expected for Commercial and Residential Real Estate
As reported in the HANDELSBLATT on 21.10.2015 and the IMMOBILIEN ZEITUNG on 22.10.2015, commercial real estate amounting to €38.2 billion has changed hands during the first nine months of what is set to be a record year once year-end figures for 2015 are compiled. Based on current figures, sales for the year as a whole are set to exceed €55 billion. According to Fabian Klein from CBRE, it is looking increasingly likely that sales may even break through the €60 billion threshold. It is also looking ever more on the cards that a new record will be set in the housing investment market. Dr. Lübke & Kelber has recorded investment totalling approximately €19 billion for the first nine months of the year. This is already ahead of figures for the previous record year, 2005. Dr. Lübke & Kelber Research has forecast that investment in residential properties will be “substantially higher than €27 billion” for the full year.
Rent Index Scheduled for Reform
The IMMOBILIEN ZEITUNG revealed on 22.10.2015 that the Mietspiegel rent index is to be given a thorough revamp. A parliamentary committee was tasked with evaluating potential reforms and has forwarded its report to the Federal Ministry of Justice. The committee recommends that rent indexes should in future be based on data from all of the rental properties in an area.
At Last: Potsdamer Platz is Sold
As the FAZ, HANDELSBLATT, BÖRSEN ZEITUNG and DIE WELT all reported on 14.10.2015, followed by the IMMOBILIEN ZEITUNG on 15.10.2015, Savills Fund Management has sold its portfolio of buildings at Potsdamer Platz to a subsidiary of Brookfield Property Partners. The portfolio, with almost 270,000 square metres of rental space, was originally acquired by what is now Savills Fund Management GmbH for the SEB ImmoInvest mutual fund in 2008. The mutual fund is currently being dissolved. The Potsdamer Platz portfolio comprises 18 properties, including seven office buildings, five residential buildings, the Potsdamer Platz Arkaden shopping centre, a number of entertainment venues, around 30 cafés and restaurants and the Mandala Hotel. The sale is expected to be finalised by the end of this year. CBRE advised on the buyer side and views this as the “preeminent property deal in years.”
Accentro Condominium Report 2015: Record Spending Despite Falling Sales Numbers
The IMMOBILIEN ZEITUNG reported on the results of Accentro’s Condominium Report 2015 in its 15.10.2015 edition. According to the report, around 129,000 condominiums were sold in Germany’s 82 largest cities; 3.3% fewer than during the preceding 12 months. Overall sales may have slipped, but the value of those sales rose by 3.6% to €24.9 billion, setting a new record. “Germany’s condominium market is in rude health,” explained Jacopo Mingazzini of Accentro. The market for condominiums in Leipzig and Dresden were among the most dynamic, with sales up by more than 16%. The highest figures in the ranking, both in terms of overall spending and average condominium prices, were recorded in Munich, even with 4% fewer transactions. Year-on-year, 7.3% more was spent on condominiums in the city, and the average price for a condominium rose by 11.8% to €366,000. Despite supply shortages in Berlin, both overall sales and average prices were down. However, sales of new condominiums bucked the general trend, rising by 15.4%. Frankfurt also registered a sharp increase in new condominium sales, up by 18.9% on the previous twelve months, and saw overall condominium sales increase by 9.9%. “We are observing a constant uptrend in the new condominium segment. Newly built condominiums will play an increasingly important role in future Condominium Reports,” said Mingazzini. Market analysis has revealed that 19.2% of all condominium sales involved newly constructed properties, representing a year-on-year increase of 1.1%.
Bremen Paves the Way for Property Seizures
Following amendments to the city’s “Police Act” (Polizeigesetz), Bremen has now joined Hamburg in paving the way for property to be commandeered in order to provide housing for refugees. This was reported in an article in the FAZ on 16.10.2015. The amendment was passed by a majority of Bremen’s state assembly members and is effective until the end of 2017. It was emphasised that the new legislation is not intended to make permanent property seizures possible. All that is permitted is the temporary use of privately-owned property to house refugees, and only when all other available options have been exhausted. “New Immigration, Demographic and Real Estate Market Forecasts”: These are the topics of a special Real Estate Roundtable at Berlin’s Maritim Hotel on 10 December 2015. You can request details of the event’s programme by sending an email to: info@immobilienrunde.de
Building Costs Continue to Climb
DIE WELT on 14.10.2015 reported on the fact that building costs in Germany are rising at a faster rate than retail prices. The Federal Statistical Office in Wiesbaden revealed that a conventional house was 1.6% more expensive to build in August 2015 than 12 months earlier. At the same time, consumer inflation was reported at 0.2% for the month. However, even this increase is outstripped by the rate at which the costs of maintaining residential property have risen, forecast to reach 2.2% for the full year. The cost of building office real estate has risen by 1.7% and commercial property now costs 1.6% more to build year-on-year.
Real Estate Taxes: IW Recommends Land Tax
In its 15.10.2015 edition, the HANDELSBLATT reported on a recommendation made by the Institute for the German Economy (IW) calling for a reform of real estate taxes. The IW suggested that the tax should in future be based solely on the value of the land, disregarding the value of any buildings on the land. The IW analysed a range of reform models, including three different proposals presented by Germany’s federal states, the IW’s own land tax proposal, and a model combining a land tax and a fixed payment. The IW’s conclusions were clear: the land tax is the best of the five options. Such a tax would increase the cost of leaving land in attractive locations undeveloped. Housing in multi-family and apartment buildings would become cheaper than the detached homes that have come to drive urban sprawl. In addition, land values are fairly easy to determine. The German Institute of Urban Affairs (DIfU) raised fears that tax streams could be affected and revenues might decline. This is the reason given by the Federal Ministry of Finance for its decision not to pursue any of the proposed reforms.
Companies Target Affordable Student Apartments
The SÜDDEUTSCHE ZEITUNG on 16.10.2015 informed its readers of developments in the market for student accommodation. Private operators may be competing for suitable properties, but investors are spending their time thinking about who their future clients will be. So far, only the luxury end of the market has really been supplied. Companies are now increasingly targeting affordable student accommodation. CBRE reports that the supply of affordable student housing either in planning or development is enough for around 20,000 students. 17,000 of these units will be delivered by private operators. 44% of all students, that’s roughly 1.2 million, are prepared to pay between €300-€400 per month for their “ideal” accommodation (i.e. centrally located, with a bathtub, kitchenette and decent furnishings). The market could become interesting for larger numbers of investors once it grows.
Retail Space Expanding in the Face of eCommerce
GfK predicts that the retail and real estate industries will deliver an increase in retail floor space through to 2025. This was picked up by the IMMOBILIEN ZEITUNG on 15.10.2015. GfK forecasts retail space growth of 0.2% to 118 million square metres and reports on a “polarisation of retail space.” In affluent, densely populated regions, the institute predicts an expansion of retail space in stores. This means that the contraction of space forecast in regions where populations are in declines will be overcompensated. The IMMOBILIEN ZEITUNG also reported that the value of retail real estate deals during the first three quarters of 2015 was 124% higher than during the same period a year earlier and fast approaching previous record years. This was mainly thanks to the relatively large number of portfolio deals. CBRE recorded transactions totalling just under €14 billion during Q1-Q3. This is €4 billion below the record set in 2006 (€18 billion).
German Hotels Grow in Popularity
Investors have been showing major interest in German real estate for some time now, driving prices for properties in typical investment asset classes (such as office and hotel real estate) in traditionally strong locations up to extremely expensive levels, reported the FAZ on 16.10.2015. An analysis published by CBRE has shown that the focus of investors’ interest has shifted as a result, focussing more and more on secondary locations and a wider range of asset classes, including industrial, light industrial and logistic real estate. Investment in German hotels was at record levels between Q1-Q3 this year, totalling €2.9 billion, a 40% increase on the same period during 2014. Total investment of more than €3.5 billion is forecast across the German hotel sector for the full year.
Investments in Berlin’s Commercial Real Estate: On The Way to a Record
Commercial real estate totalling €4.76 billion was sold during the first three quarters of 2015 in Berlin, reported the IMMOBILIEN ZEITUNG on 22.10.2015. This means that more real estate was traded in Berlin than in Frankfurt (€4.4 billion) or Munich (€4.3 billion). At the same time, the nine-month figure is higher than for the whole of 2014. Investment is expected to reach €6.5 to €7 billion by year end. Almost a quarter of the properties were bought by institutional funds, followed by listed real estate companies/REITs in second place with almost 20%, then project developers with (10%), private investors (9%) and pension funds (8%). Almost half of the money flowing into the market came from overseas investors. According to Andreas Wende from Savills, interest among foreign investors remains extremely high.
Q3 in Frankfurt Ends with No Big Office Deals
Although vacancy rates are falling and rental prices are trending upwards, the latest quarter drew to an end without adding to the year’s large-scale deals, reported the IMMOBILIEN ZEITUNG on 22.10.2015. DVAG’s acquisition of more than 10,000 square metres remains the only really large deal of the year. Frankfurt’s real estate brokers are nevertheless occupied with a range of smaller deals up to 1,000 square metres and between 5,000-10,000 square metres. BNPP RE reports that the turnover of space in deals up to 5,000 square metres amounts to 252.000 square metres for the year-to-date. This is ?
20,000 square metres more than the ten-year-average. However, high levels of demand in the smaller-scale segments could not make up for a lack of big transactions. According to Savills, total space turnover across all size classes amounted to 280,000 square metres, almost 20% lower than the ten-year-average of 338,000 square metres.
Hamburg’s Investment Market Sets Records in Q1-Q3
€3.2 billion flowed into Hamburg’s real estate investment market between Q1-Q3 2015, the highest levels of investment recorded in the city since 2007, according to a report in the IMMOBILIEN ZEITUNG on 22.10.2015. This is 31% more than during the same period one year earlier. 25% of this investment was targeted at portfolio deals and 50% came from foreign investors. Prices and rents are increasing while vacancy rates are falling back. Nevertheless, prime net rental yields in the office and retail categories continued to decline. Sascha Hanekopf highlighted immense levels of demand and meagre levels of supply in the core and value-add segments. Hamburg’s secondary locations have profited from a strong rally in the core-plus segment. Many of today’s investors are more open to taking risks, explains Michael Mikulicz of CBRE. By the end of 2015, investment is set to exceed €4 billion.
Minimal Vacancies in German Shopping Centres
The IMMOBILIEN ZEITUNG on 22.10.2015 contained an article about the low vacancy rates in Germany’s shopping centres. The report is based on the results of a study published by DAWM. The average vacancy rate across the whole of Germany currently stands at 4.5%, comparing favourably with a European average of 7.5%. The study just goes to show why investors are currently so keen on German retail real estate.
41 Kaufhof Objects Sold for €2.6 Billion
On 23.10.2015, the HANDELSBLATT reported on the sale of Kaufhof real estate by the company’s new owners, Hudson’s Bay Company (HBC), for an unexpectedly high price. Including pension liabilities, HBC paid €2.8 billion to buy the department store business and its 59 properties. It looks as if the department store buildings may well have been worth much more than that, particularly now that HBC has sold 41 of them to a joint venture between HBC and the commercial real estate specialist, Simon Property, for €2.6 billion.
Record Investment in Logistics
As reported in the IMMOBILIEN ZEITUNG on 22.10.2015, real estate service companies have been reporting that this should be a record-setting year, not just in terms of investment, but also in relation to space take-up. JLL and BNPPRE both forecast transactions to potentially total €2.7 billion, CBRE, Colliers and Savills expect the year’s final figures to amount to between €2.2 and €2.4 billion. The share of the deals financed from overseas is higher than the average of other asset classes. According to JLL and CBRE, foreign investors accounted for almost two thirds of transactions in the first three quarters of the year, with JLL reporting €1.9 billion and CBRE putting the figure at €1.66 billion. BNPPRE’s figure of €1.56 billion represented a share of almost 60%.
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 Muenster
Muenster, as one of the most important research and university towns in Germany, benefits from an excellent research infrastructure. In addition, several regional and federal institutions are situated in Muenster, so that the public sector share in Muenster’s total regional production surpasses the average for German metropolises in its size category. The biggest share of regional production is from the service sector, which focuses on banking, insurance, and business-oriented services. The industrial sector, principally specialized in the chemical industry, plays only a secondary role in the regional output configuration. In the years to come, one can expect regional production as well as per capita disposable monthly income in Muenster to increase at rates that exceed the average for German cities in its size group.
Feri rates Muenster as a business location “A”, which is upgraded to the 3rd 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 Muenster “B”, which is upgraded to the 3rd quarter 2014. The city ranks 6th among office locations of German B-Centers. Feri awards the office top locations “B+” and the side locations “B”
Muenster’s office market stabilized in the past years, bolstered by increased leasing to insurance, business services, and technology and telecommunications companies. These enterprise segments account for most of the local demand for office space. Several new projects are likely to expand the stock of office space, though it is uncertain whether all the new buildings planned will be realized. Yet, since speculative construction is not much of a factor, the currently low vacancy rate is unlikely to increase notably. In the years to come both segments office rents are expected to rise quite steadily again.
Retail Real Estate
In the comparison of German B-Centers regarding retail real estate Muenster placed 6th with a rating result of “B”, which is unchanged compared to the 3rd quarter 2014. Feri awards the retail top locations “B” and the side locations “B+”.
In the mid-1990s, demand for retail space in Muenster faltered. Moreover, the development of retail rents in the current decade has been weak, too. For top locations, rents have been weak; in secondary locations, rents exhibited a frequent tendency to drop sharply. The completion of the “Muenster-Arkaden” in 2006 and the extension of retail space in the Muenster region e.g., “Bahnhofs-Arkaden” or “Stubengasse” improved the attractiveness of Muenster’s inner city as a shopping location. Furthermore the reshaping of the “Alter Fischmarkt” with a combination of retail, service, restaurants and residential space will improve Muenster’s development.
Residential Real Estate
When it comes to residential real estate, Muenster placed 9th among German B-Centers with a rating result of “C”, unchanged compared to the 3rd quarter 2014.
Rents for both new and existing apartments in Muenster have risen during the last several years. One factor driving these increases was the region’s growth in population. Students at the university are an important source of demand for rented dwellings. In the upcoming years, further rent increases for both new and existing apartments can be expected. This prediction is based on both consistently stable demand and on projections for only a low level of new building activity in the multifamily housing segment.
Muenster is among those German regions that have gained population during the last several years. This moderate demographic uptrend is expected to continue over the forecast horizon. Accordingly, demand for housing property in the region seems likely to rise during the years to come – not least because investment in residential property is becoming an increasingly important strategy for financial security during retirement. Furthermore, Muenster’s strong projected performance with respect to disposable incomes will have a supportive influence on housing property prices. Demand for condominiums will mainly focus on the inner city, whereas buyers looking for houses will often prefer the suburbs.
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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