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Residential towers grow in popularity
Around 10,000 apartments are currently under development in German residential towers, according to the HANDELSBLATT on 20.05.2016. A bulwiengesa study reveals that 79 high-rise apartment blocks are due to be completed by 2018. In terms of both appearance and the amenities they offer, these towers are a world away from the blocks built in the 60s and 70s. Major developments such as Grand Tower and the Henninger Turm in Frankfurt are explicitly targeting a wealthy clientele. These and other similar projects could soon lead to a very competitive market in Frankfurt. Similar developments are also underway in a number of other German cities. The 53-metre residential towers comprising Project FRIENDS in Munich are nearing completion. Düsseldorf’s 60-metre Pandion le Grand has just celebrated its topping out festival, and 44 high-rise apartments are currently being constructed on the 26th floor of the Hamburg Elbphilharmonie. Berlin is also getting in on the action, with the Monarch Group about to begin construction of its high-rise residential tower Alexander at Alexanderplatz. The city will also see the conversion of a high-rise office development near Kurfürstendamm, with the tower being transformed into the High West residential tower. These new residential towers are being created in response to growing demands for “noble urbanity”: Tenants want to live centrally, but are not willing to compromise on exclusivity. A clear majority of the apartments being created in these residential towers are condominiums, although Hamburg’s Westside Tower will also provide premium rental units for between €13.50 and €19.50 per square metre per month. Beyond the premium segment, rental housing paradigms are also shifting. This is demonstrated by Wertgrund’s acquisition of an unrenovated 1970s residential tower in Cologne-Bickendorf for one of its funds. Thomas Meyer of Wertgrund is certain that the apartments will be successfully let as the tower, with its central location, ticks all the right boxes for today’s urban living.
Residential prices keep on rising
As detailed by the IMMOBILIEN ZEITUNG on 19.05.2016, an LBS survey of around 600 real estate market experts from regional building societies and mortgage lenders has revealed that residential real estate prices look set to rise further. As shown by the “Residential Property 2016″ report, the experts expect residential property prices to add between 3 and 4 percent this year. Munich, and in particular the city’s suburbs, are the most expensive property markets in Germany. Price rises are being fuelled by low interest rates, strong employment and wage growth, along with increased demand for housing (partly as a result of the influx of refugees) at a time when new construction is simply not keeping up with demand. Existing free-standing single-family houses in Munich now typically start at €1 million, with similar properties in the suburb of Grünwald changing hands for around €1.55 million. Following Munich in the rankings are Regensburg (€790,000), Stuttgart (€780,000), Wiesbaden (€750,000) and Freiburg im Breisgau (€700,000). The most expensive properties are not in central urban areas, but in rural areas around major cities. In Meerbusch, a neighbour town of Düsseldorf, property prices are typically €725,000, which is €275,000 more than in Düsseldorf itself; prices in Hofheim am Taunus (€800,000) are around €150,000 higher than in Frankfurt. In contrast, Leipzig, Hannover, Bremen, Dortmund, Dresden and Berlin offer the lowest prices. Prices for existing single-family houses in these cities range from €250,000 to €320,000. Prices for newbuild condominiums increased in almost every region of Germany during 2015, although the increases were greatest in popular tourist towns and cities, large metropolitan areas and university towns. Grünwald near Munich topped this ranking too, with prices averaging €7,500/m², followed by Munich proper (€6,500/m²). Alongside Munich’s other surrounding communities, high condominium prices were also reported in Frankfurt and Stuttgart (both averaging €4,600/m²) and Hamburg (€4,350/m²). Prices for existing apartments were on average 40% lower than the prices for newbuild apartments. Prices for development land in southern Germany’s large- and medium-sized cities have now risen above €400/m². This was another category in which Munich held first place in the rankings, with land costing upwards of €1,550/m². In northern Germany land costs around €130/m² and in the east prices of just €80/m² were recorded.
Plans to extend BaFin’s powers
Referring to sources within financial circles, the HANDELSBLATT reported on 18.05.2016 that proposed new legislation would extend the powers of the Federal Financial Supervisory Authority (BaFin). The new regulations would require property buyers to increase the proportion of equity capital they use to finance their developments and acquisitions, whilst also setting amortisation deadlines and maximum maturity limits for bullet loans. The recommendations include giving BaFin the power to cap the quotient of borrowers’ overall financial burden from debt-financed projects in proportion to their income (“debt service coverage ratio”) in order to limit the risk of over-indebtedness and default. A cap on loan-to-value ratios would also be imposed, further limiting banks’ exposure to potential defaults.
Details on special depreciation for rental apartment construction
The federal government has presented the first figures in relation to its contested plans to introduce new tax benefits for rental housing developers, i.e. special depreciation allowances, reported DIE WELT on 20.05.2016. The government expects that the new measures will result in the construction of around 352,000 new rental apartments between 2016 and 2021. The new regulations will enable developers and investors to write-off 29% of the development or acquisition costs of rental housing over the first three years after completion. This will apply in addition to the regular 2% write-offs already available to developers, resulting in a total write-off of 35%. There are strings attached: Apartments must be rented out for a minimum of ten years and they must be located inside a designated “over-heated” housing market. The subsidy is forecast to cost the government a total of €2.1 billion through to 2020.
Berlin’s start-ups need more office space
As revealed by the IMMOBILIEN ZEITUNG on 19.05.2016, Berlin needs to increase supplies of affordable office space if it wants to keep up with demand from the city’s flourishing start-up scene and offer these innovative companies the conditions they need for flexible growth. Around 500 new companies are set up in Berlin each year. €2.2 billion of venture capital was invested in Berlin during 2015, the highest figure in Europe. According to figures compiled by JLL, a mere 42,000 square metres of office space was leased to start-ups in Berlin between 2006 and 2010; a figure that jumped to a massive 80,000 square metres in Q1 2015 alone. Start-ups are the driving force across all segments of Berlin’s real estate markets. Start-ups often have little choice but to rely on co-working spaces. Experts predict that approximately 30% of all start-up employees will be working in co-working spaces by 2030.
Frankfurt is number 1 for commercial real estate investments
According to an article in IMMOBILIENMANAGER 5-2016, a total of €5.6 billion was invested in commercial real estate in Frankfurt (incl. Eschborn) last year. This is the second highest total since records began. This means that 10% of all commercial property transactions in Germany involved properties in the Main metropolis. Almost 85% of investment in Frankfurt (€4.7 billion) flowed into the office segment. One striking feature is the number of individual transactions, accounting for 83% of total transaction volumes. 134,000 square metres of space have already been taken up in Q1 2016, a year-on-year increase of 33%. For the full year, it is possible that space take-up will reach 450,000 square metres. Investors continue to focus primarily on core locations, although the availability of objects in these locations is severely limited.
Medium-sized cities gain ground
According to a CBRE study, in cooperation with Vonovia, Dresden and Leipzig are particularly “dynamic” cities. The study was explored in a HANDELSBLATT article on 18.05.2016. CBRE analysed the real estate markets in 29 German cities with populations of 200,000 and above. Leipzig is enjoying a great deal of attention, especially from young families and real estate investors. In just three years, between 2012 and 2015, the city’s rents rose by an average of 12.6%. The study reports that, more than anywhere else, it is medium-sized cities that currently offer the greatest potentials. CBRE’s Henrik Baumunk says that the following rule of thumb applies: “The greater the discount to prices in Munich, the greater the potential.” Even supposedly out-of-the-way cities such as Halle, Dortmund or Essen are becoming increasingly lucrative. Investors on the lookout for value-add potential will have to broaden their horizons, says Baumunk. Michael Psotta commented on the study’s findings in the FAZ on 20.05.2016. He highlighted the fact that internal migration has increasingly changed the face of Germany over the last few years: Significant sections of the population have been moving to urban centres, drawn by strong employment, well-developed infrastructure, extensive healthcare and social provision. As he points out, this development is not just limited to the biggest cities, but also applies to regional centres such as Göttingen and Darmstadt with their focus on science and research. The study shows that internal migration has been the primary driver of housing shortages in metropolitan areas, especially as the recent arrival of refugees has yet to have made much of an impact on the country’s housing markets, and suggests that these developments will increasingly have an impact in the smaller major cities. In view of the fact that housing construction has picked up, and even though completions are still running far behind rising levels of demand, the study offers a quietly confident outlook. What is needed more than ever are measures to facilitate the construction of affordable housing.
Crowdfunding gains in popularity
An iFunded.de study has revealed that a total of €18.4 million in small investments of €10 and above was invested in German real estate last year, reported the HANDELSBLATT on 20.05.2016. This represents a fifteen-fold increase over three years. The money has largely been invested in new developments. Projects worth more than a combined €178 million have so far been funded with the involvement of crowdfunding. Including refurbishments and portfolio projects, the figure rises to €309 million. The study predicts that it will only be a matter of a few short years before alternative online financing becomes as established as bank and mezzanine financing. The study’s authors believe that the advantages of crowdfunding lie in the speed and ease of the transactions involved. These are factors that should also interest project developers. Professional mezzanine investors typically expect returns of around 10% per annum, along with a share of the profits if an object is sold at a higher than predicted price. Crowdfunding projects should generate average returns of 5.9% and, in the best cases, of up to 7.5% per year. After all, crowdfunding provides project developers with better value financing.
Mietpreisbremse has performed badly
A year after its introduction, Berlin’s Mietpreisbremse rental price brake has failed to deliver as promised, reported EURO 06/16, EURO AM SONNTAG on 21.05.2016 and the HANDELSBLATT on 27.05.2016. An analysis of advertised rents on Immobilienscout 24’s property website carried out by the German Tenants’ Association has confirmed what was earlier shown by an empirica study: advertised rents may have fallen immediately after the introduction of the Mietpreisbremse, but they soon returned to their previous trajectory of growth. According to empirica, rents in Germany’s capital were on average 2% higher in January 2016 than in June 2015. Similar developments have been reported in other major cities. At the same time very few tenants have headed to court to enforce their rights under Mietpreisbremse legislation. “Landlords and tenants seem to have come to some sort of arrangement,” says Hans-Joachim Beck of the IVD. “Many tenants are just happy to find an apartment, the last thing they want to do is start off by annoying their landlords.” Beck believes that the way the law has been drafted creates a range of problems. Many cities don’t even have qualified rent indexes, which means that there is no way to correctly determine local benchmark rents. An F+B Forschung und Beratung für Wohnen analysis reveals that only 57% of all towns and cities with more than 20,000 inhabitants actually have rent indexes. For cities with more than 100,000 inhabitants, the figure rises to 89%. Among the cities with more than 500,000 inhabitants, Bremen is the only city without a rent index. DIE WELT reported on 26.05.2016 that the F+B study also proves that rising benchmark rents feed directly into rising rental prices. Yet again, average rental prices have risen faster than other living expenses – six times faster. According to F+B, net cold rents in Munich averaged €11.12 per square metre per month last year, 74% more than the average of €6.39 per square metre per month for the other cities with rent indexes. In Stuttgart the average was €8.57 per square metre, in Cologne €8.19 and in Hamburg €8.01. Rents in Berlin are much lower, partly as a result of the different assessment procedures in the city’s eastern and western districts. In the city’s western districts net cold rents averaged €6.39 per square metre per month, whereas in eastern districts the figure was significantly lower, at €5.79. In any case, these figures have very little to do with the current rental market. After all, they include rental prices that haven’t been updated for ten or twenty years. It is almost impossible to find an an apartment being advertised anywhere in Berlin right now for less than €8.00 per square metre per month. In Munich, new tenants have to pay an average of €18.00 per square metre for a newly leased apartment. The rental price brake has also had an impact on landlords, for example discouraging them from carrying out expensive refurbishments unless they are extensive enough to exclude apartments from the Mietpreisbremse’s provisions: “Private investors in particular are delaying investment decisions as they know that it will be almost impossible for them to recoup their investments.” Federations such as the IVD have already reported that a growing number of private owners are being driven to sell their apartments either to tenants or to large housing companies, who are able to take advantage of economies of scale to reduce administration and investment costs. In the FAZ on 27.05.2016, Michael Psotta commented that there has never been a housing policy as “perverse as the politically dubious, almost completely ineffectual and badly implemented Mietpreisbremse.”
Number of building permits rises, but there is still not enough construction
On 21.06.2016, the FAZ examined figures from the Federal Office of Statistics that reveal 84,400 building permits were issued during Q1 2016, an increase of 30.6% compared with the same quarter in 2015. This is the highest figure reported for a first quarter since 2004. 23% more permits were issued for detached houses, 27% more for semi-detached houses, and 24% more for multi-family houses. No figures have yet been released for the number of apartments completed during Q1 2016. In the first quarter of the pervious year, the number of completed apartments was 50,000 less than the number of building permits issued during the same period. The fact that housing construction has been growing steadily since 2009 is largely driven by the increased demand for housing in major cities, university towns and now also in medium-sized cities. As the FAZ reported on 25.05.2016, the DIHK’s economic forecasts would be 0.8% if it weren’t for the sustained boom in construction and consumer spending, both of which are being fuelled by a proliferation of low-cost loans and mortgages resulting from the current low interest rate climate. Despite the fact that the number of building permits issued has risen so quickly, even more are needed. On 21.05.2016, DIE WELT revealed that the Federal Statistical Office reported both rising prices for development land and a 1.6% increase in the costs of conventionally constructed apartments between November 2014 and November 2015. Prices for the shell construction of residential buildings rose by 1.1%, while other installation and finishing works were 2.1% more expensive over the same period. The biggest increases were reported for gas, water and sewage works (+ 3.0%), low- and medium-voltage systems (+ 2.8%), glazing and central heating and warm water systems (each + 2.6%). The prices for concrete and brickwork rose by 0.6% and 0.8% respectively. Given the current housing shortage, it is counterproductive to both add to construction costs, by introducing tighter energy-efficiency regulations (EnEV), and to restrict lending, by introducing stricter restrictions on borrowing, explained Reiner Reichel in the HANDELSBLATT on 23.05.2016: “The federal government would be well advised to stop unsettling investors with contradictory measure. After all, over-heated housing markets, whether rental, buy-to-let or for owner-occupiers, are best cooled by increasing supply.”
Lending regulations restrict asset building and retirement planning
On 22.05.2016, DIE WELT reported that the federal government’s latest measures to regulate loans for the construction or purchase of residential real estate are creating a two-tier society as far as home-ownership is concerned. The Institute for the German Economy (IW) has shown that home-ownership rates are only increasing in the top group of Germany’s five income groups. In comparison to 2010, the lowest group has suffered a decline. Legislators are committed to reducing the risks of another sub-prime crisis, and have done so by ensuring that, although lending has increased overall, it has primarily been directed at highly solvent households. The Bundesbank is not in possession of any more specific information on this subject. According to Interhyp, the average price of a condominium rose from €264,000 in 2010 to €321,000 in 2015. At the same time, the average amount of household equity used to fund the purchase of a condominium rose from €78,000 to €91,000. This shows that, even were prices to suddenly drop by 20%, lending banks are not over-exposed to default risks. Nevertheless, the federal government is currently putting together a package of stricter regulations that, at least according to the IW, could lead to a suspension of households making financial provision for retirement. The new regulation of loans for the construction or purchase of residential real estate could totally exclude a large number of would-be buyers from the German market, reported the BÖRSEN ZEITUNG on 21.05.2016. The new regulations will have the greatest impact on buyers who want to purchase property in Germany but are from non-eurozone EU countries. Should the exchange rate between the euro and the creditor’s national currency move by more than 20% in favour of the creditor, the creditor would have the right to demand that the value of the outstanding loan should be converted into their national currency. This would represent an almost unquantifiable risk for German banks, who would most likely decline any such loan applications. One method of circumventing this requirement would be to set up a special purpose limited liability company in Germany or abroad, through which any loan could be channelled.
New solutions for long-term refugee accommodation
The FAZ reported on 27.05.2016 that empirica’s “Distribution of Refugees Across Germany” study has described how the recent influx of refugees to Germany has made providing affordable housing more challenging than ever. In Bremen, the developer Interhomes has launched a project development that can be completed within four to six weeks. Across 75 square metres, spread over two storeys, space is being created to accommodate up to 11 people, whilst also respecting their requirements for privacy. In Ludwigsburg, the Strenger Gruppe has launched its Nest project, enabling up to 15 people to live together in relative comfort in brick and concrete homes. According to ZIA, the priority should be to accommodate refugees in existing residential areas, wherever possible, in order to ensure integrated housing growth. Andreas Mattner of ZIA said: “The arrival of large numbers of refugees must not be allowed to lead to new building permits being issued exclusively for apartment developments, which is what we are already seeing in some regions.” He believes that this would result in residential ghettos and a dramatic reduction in quality of life.
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 Osnabrueck
Osnabrueck is a trade and transportation center situated at the intersection of railways and motorways in Lower Saxony. Reflecting the comparative advantage intrinsic to this location, transport and logistics companies play an important role in Osnabrueck’s economy; the share of regional production posted by the trade and transportation sector exceeds the German average. Conversely, the industrial sector’s output share has been declining, and is now only average. Osnabrueck’s industrial sector specializes in the manufacture of paper and printing products, as well as vehicle and metal processing industries. In recent years, the service sector has grown steadily, achieving an ongoing rise in output share. Health carerelated enterprises and business-oriented services are the most prominent service sector segments, with the best prospects for further positive development.
Feri rates Osnabrueck as a business location “D-“, which is unchanged compared to the 1st quarter 2015. It translates into “below average potential, above average risk”. With this rating result the city ranks 27th in the comparison of German B-Centers.
Office Real Estate
Regarding office real estate Feri rates Osnabrueck “B”, which is upgraded to the 1st quarter 2015. The city ranks 14th among office locations of German B-Centers. Feri awards the office top locations “C” and the side locations “B+”
Through a long period that started in the mid 1990s, office rents in Osnabrueck declined almost without interruption. Indeed rents in Osnabrueck have recovered with the development of the service sector in recent years. New central city office facilities draw by far the most demand. Tenants are chiefly services companies, usually small or medium-sized. The type of space sought after, and the typical tenant profile, have held constant for many years.
Retail Real Estate
In the comparison of German B-Centers regarding retail real estate Osnabrueck placed 23rd with a rating result of “C”, which is unchanged compared to the 1st quarter 2015. Feri awards the retail top locations “C” and the side locations “D”.
Osnabrueck is a regional retail center. There are no peripheral shopping centers in the surrounding area to pose a competitive challenge. Nevertheless, rents for retail shop space declined in the 1990s. The reconstruction of the inner city area enhanced the town’s attractiveness as a shopping venue in the top locations. This is reflected in the rise in rents for inner city retail space. Especially medium and large selling space areas are in demand, surpassing the existing supply. A high amount of chain stores and the low fluctuation reflect Osnabrueck’s attractiveness for the retail industry. One of the most important investments in the area is the proposed building of an inner city shopping center the “Osnabrück-Arcaden” with approx. 17,000 sqm of retail space.
Residential Real Estate
When it comes to residential real estate, Osnabrueck placed 25th among German B-Centers with a rating result of “C”, unchanged compared to the 1st quarter 2015.
The dynamic population growth and the associated demand for housing have led to the fact that the apartment vacancy rate decreased meanwhile with 1.9% to a very low level. With the departure of the British military since 2006 began a successful process to involve former military sites in an urban development concept and to provide housing space. Of the original 6 barracks only one area “Am Limberg” is still ready for conversion. Thus the city has used its chance with the designation of residential land to counteract the trend of decreasing population figures which was observed during the 90´s.
On Osnabrueck’s residential sales market prices for both condominiums and houses have shown dynamic growth rates in the past years. This is supported by the positive population development and the development of households. Both house and condominium prices in Osnabrueck are expected to rise further in coming years, backed by a growing trend of people investing in residential real estate as a financial security provision for their retirement years.
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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