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Eliminate the causes of the refugee crisis” – is that really a solution?
By Dr. Rainer Zitelmann
It always sounds good: There’s no point wasting your time tinkering around with the symptoms of a problem, you’re better off focussing your efforts on eliminating the roots of the problem. Of course this appeals as an “intelligent” and “sustainable” strategy. Who could possibly challenge the idea of tackling a problem’s causes? In the current environment, it is a very rare interview indeed in which a German politician does not stress the need to “eliminate the causes of the refugee crisis.”
But what exactly are the causes of the refugee crisis? Here most observers are in agreement: Large numbers of people are fleeing conflict and civil wars. And there are large numbers of people trying to escape hunger and poverty who see a better future in Europe. “Eliminating the causes of the refugee crisis” basically means: eliminating conflict, civil war, hunger and poverty.
The figures are bad: According to the UN’s Food and Agricultural Organisation (FAO), of the seven billion people on our planet, 795 million are undernourished. In Africa alone, 232 million people do not have enough to eat and drink. Africa also has the highest proportion of undernourished people as a percentage of its population, namely 20%.
As reported by the Heidelberger Institute for International Conflict Research, there were 424 conflicts raging across the world in 2015, of which 21 were classified as wars. Of these 21 wars, nine were taking place in the Near and Middle East and nine were in Africa.
Is it really within the scope of the Federal Republic of Germany’s powers, or even those of the European Union, to change all of this and thereby “eliminate the causes of the refugee crisis?”
The EU, with its 28 member countries, currently provides around 50% of global development aid, contributing more than €58 billion per year according to figures published by the Federal Ministry for Economic Cooperation. And yet all of this aid cannot eliminate the root causes of suffering and destitution around the world.
After all, the root causes are corrupt governments – such as those in place in many African countries – and corrupt systems that do not follow free market economic principles. The proof: The renowned Heritage Foundation regularly produces a global ranking of economic freedom. This index measures the degree of economic freedom in individual countries. The ranking is headed by Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia and Great Britain. Unsurprisingly, no one is rushing to escape from these countries because of economic hardships.
In other countries the situation is so catastrophic that it is impossible to even rank them. Such countries include Afghanistan, Iraq, Libya, Somalia, the Sudan, Syria and Yemen. Algeria comes 154th of the 178 ranked countries, Ethiopia is in 148th place, Lebanon ranks 98th, and so on. All over the world, people are regularly fleeing from countries with low levels of economic freedom and heading towards countries with higher levels of economic freedom because the quality of life in the freer countries is so much better. For example, large numbers of people have fled from Mexico (62nd in the ranking) to the USA (11th).
“Eliminating the causes of the refugee crisis” would ultimately mean establishing free market systems in those countries with low levels of economic freedom. In the very same countries where corruption and dictatorships reign, democracy and the rule of law would have to be introduced. Only the people who live in these countries could possibly do this. Free market economics and democracy cannot simply be exported, as the many failed attempts to do so by the United States amply demonstrate.
It is nowhere near as easy to eliminate the forces that drive refugees out of their homelands as many politicians make it sound in their interviews. Conflict, civil war, malnutrition and poverty have their roots in the political and economic systems of the African countries. As long as these root causes exist, it is easy to understand why so many people are going to such great lengths to escape misery.
Even though talk of eliminating the causes of the refugee crisis might sound logical and “sustainable” at first, it is in no way a realistic solution to dealing with the problems faced today.
Read also Rainer Zitelmanns Finance Blog.
Real estate investments benefit from zero interest rates
The BÖRSEN-ZEITUNG, FAZ, SÜDDEUTSCHE ZEITUNG, HANDELSBLATT, DIE WELT and a range of other media all reported on 11.03.2016 that the European Central Bank (ECB) has increased its controversial bond-buying programme from €60 billion to €80 billion. The ECB also further decreased the interest rate on its bank deposit facility and, for the first time in history, pushed its key interest rate down to zero. The HANDELSBLATT expects that this will lead to further growth in demand for real estate investments. Real estate buyers and owners have benefitted greatly from the interest rate crisis. Residential and commercial real estate transactions were already running at record levels last year, reaching a total of €79 billion, explained Christian Schulz-Wulkow from Ernst & Young Real Estate. In addition, high real estate prices are the result of both “positive fundamentals” and low interest rates. Investors in residential real estate in Germany’s biggest cities based their calculations n yields of between three and five percent. Any risks are entirely manageable. Manfred Binsfeld from Feri Euro-Rating advises investors to be on the lookout for real estate investments in economically healthy regions, with favourable demographic indicators where rental yields of four percent and above can be achieved.
Lenders are worried about refinancing
As the BÖRSEN-ZEITUNG revealed on 10.03.2016, it could be difficult to refinance loans over the next few months, despite the current strength of the real estate markets. According to the latest survey of 50 active market participants carried out by the German Real Estate Financing Index (Difi), there has been a fall in the indicators for both current assessments and future expectations regarding potential refinancing options. The deteriorating assessments are distributed across the full range of refinancing instruments. The greatest decline is expected in unsecured bonds, followed by the real estate stock markets. It is also predicted that the spread between mortgage-backed bonds and unsecured bonds on the one hand and German public-sector bonds on the other will widen.
German investors value security
The FAZ revealed on 09.03.2016 that German investors are prioritising security against the current backdrop of high volatility. According to a representative survey from Deutsche Börse Commodities, only 25% of the German population are not unsettled by current developments. Around half of those with disposable capital are investing in real estate, 46% are increasing the amount in their in savings and deposit accounts and approximately 33% are investing in gold. Funds, stocks and bonds are currently playing a subordinate role.
Constitutional change for social housing construction
As reported by the IMMOBILIEN ZEITUNG, DIE WELT and the FAZ on 10.03.2016, the Federal Construction Minister Barbara Hendricks (SPD) wants to amend Germany’s constitution by 2017 at the latest in order to boost the construction of social housing. This will take place alongside the scheduled adjustments to the financial equalisation scheme between Germany’s federal and state governments. The aim is to build 350,000 new apartments per year, of which 80,000 will be in the social housing sector. At the same time, Minister Hendricks wants to return a range of competences relating to social housing to the federal government, partially reversing the 2006 deal to hand full responsibility for social housing to state governments. Hendricks would like to anchor a “joint task for demographics and integration” in the German constitution. This would require an end to the strict segregation of responsibilities at federal and state government levels. This would mean that as well as sharing financial responsibility, federal and state governments would also jointly establish the criteria that any social housing project would be expected to fulfil in order to qualify for funding. The federal government has already doubled the funding it provides individual states for social housing to €1 billion. Hendricks wants to double this again, providing €2 billion as part of 2017’s budget. Alongside direct funding, the programme also includes special depreciation allowances of up to 35% of construction costs to incentivise new rental apartments. The special depreciation allowances are capped at €2,000/m² for projects with construction costs not exceeding €3,000/m² and the programme is set to run through until the end of 2018.
Slight decline in net initial yields
As reported by the IMMOBILIEN ZEITUNG on 10.03.2016, a study published by Savills shows that advertised rents for apartments across Germany have increased by 6.5% since 2012. Double-digit increases were reported in many of the cities with more than 500,000 inhabitants. However, the rate of increase in Germany’s eight biggest cities weakened in H2 2015, whilst remaining at a high level. Given the resulting demand surplus, net initial yields are now in decline. Prices for condominiums also dipped slightly in H2 2015. Savills expects that yield compression will continue throughout this year, although at a slower pace than last year. Savills’ market report examined 60 relevant markets with average gross initial yields of 6.2% at the close of 2015. Above-average net initial yields are still possible in regions that are undervalued in relation to their population growth forecasts, such as Braunschweig, Erfurt, Gießen and Greifswald. Gross initial yields in these cities are currently in the 7% and above range.
Housing shortage in major metropolitan areas
The FAZ on 09.03.2016 reported on a study released by Prognos and Allianz revealing a shortage of almost one million apartments in the cities and regions with the largest demand for housing. The shortage will result from migration, the trend towards single-person households and population movements within Germany. Among those cities most affected are Munich (population growth of 45% forecast by 2045), Berlin, the Rhine-Main region, Stuttgart, Hamburg and Cologne. In structurally weak regions, primarily in eastern Germany, the opposite will be true and the number of households will decline.
Fewer vacancies push prices higher
The market research company empirica has calculated that only 0.4% of all apartments in Munich are currently vacant. The vacancy rate in Frankfurt is 0.6% and in Berlin it is 1.5%. This was detailed in an IMMOBILIEN ZEITUNG report on 10.03.2016. These developments are reflected in housing price movements. The average price for a condominium in a multi-storey apartment building in Munich has reached €4,200/m². In Germany as a whole, prices rose by an annual average of 2.7%. Furthermore, B cities in the vicinity of major metropolitan areas also reported strong growth. In particular, the areas around Munich, as well as Teltow near Berlin have grown strongly over the last five years. This was revealed by the Federal for Building, Urban Affairs and Spatial Research.
Frankfurt needs more building land
Frankfurt’s population is skyrocketing, wrote the IMMOBILIEN ZEITUNG on 10.03.2016. Forecasts reveal that Frankfurt’s population is set to grow by around 17% by the year 2040. As a result, plans need to be made now if sufficient housing is to be provided. Housing in Frankfurt is already in short supply and there have already been a noticeable increase in migration to surrounding areas. This can be seen in the case of Kaiserlei in Offenbach, which was traditionally a purely business district and has evolved into a residential district within commuting distance of Frankfurt. The Berlin-based CG-Gruppe is currently building 910 apartments in Kaiserlei. Nevertheless, the need for commercial and industrial space should not be ignored. Forecasts indicate that businesses will need an additional 160 hectares. City authorities are now examining the potentials of tapping into land that is currently either unused or under-exploited.
Developments up and running in Frankfurt Niederrad
According to CBRE, 130,000 m² of office space has been converted for housing purposes in Frankfurt Niederrad since 2009, revealed the SÜDDEUTSCHE ZEITUNG on 11.03.2016. 3,000 new apartments will provide housing for 6,000 people by 2017 and existing office space is set to be modernised. “The area’s office vacancies have reduced significantly over the last few years,” said Jan Linsin from CBRE. The vacancy rate in 2011 stood at 23%. This is now down to 15.6%.
Care home investments are expensive, but they make sense
On 10.03.2016, the IMMOBILIEN ZEITUNG explained why it will be progressively more difficult for investors to find suitable objects to convert into care homes. A care home that meets all modern standards will deliver yields of approximately 6%. However, this is not enough for many institutional investors. One consequence of this is seen in the fact that more commercial space was repurposed for care home use last year than ever before. Nevertheless, according to CBRE only €834 million was invested in care homes in Germany in 2015 (+3% compared with 2014). In explaining this, CBRE points to a shortage of available care homes.
CBRE is the new number one
CBRE has become Germany’s biggest commercial space broker, reported the IMMOBILIEN ZEITUNG on 10.03.2016. With the takeover of Johnson Control’s Global Workplace Solutions (GWS) division, the US group has more than doubled its workforce in Germany. CBRE now has a staff of around 1,300 employees in Germany. No other company in the sector has such a large workforce. The takeover of GWS, which provides integrated property management services for commercial real estate, continues CBRE’s strategy of acquiring companies that offer services that will complement its traditional brokerage business. The strategy is bearing fruit and has delivered enormous growth. As little as ten years ago, back when CBRE was still known as CB Richard Ellis, the company’s German workforce had just about reached 100 employees.
Commercial real estate transactions at record levels
DIE WELT on 05.03.2016, WELT AM SONNTAG on 06.03.2016, along with the HANDELSBLATT and SÜDDEUTSCHE ZEITUNG on 11.03.2016, all reported on the €55.1 billion invested in commercial real estate in Germany last year. This is 40% more than in the year before and even approaches the volumes recorded in 40% 2007. This massive increase in transactions is largely due to the fact that interest rates are so low, which has led to a spike in demand. The asset class is however not risk-free. Nevertheless, acquisitions are typically financed with debt ratios of between 50% and 70%. This serves to limit banks’ exposures. Additionally, very little new commercial real estate is being built in many towns and cities, because local authorities are more focussed on boosting housing construction or prioritising available space to accommodate refugees. Falling vacancy rates and soaring demand are the natural result of positive economic fundamentals, which also offer the potential for rent increases that would drive property prices even higher. In the office market more than any other, vacancy rates have been in steep decline since 2010. According to Ernst & Young Real Estate’s Trend Barometer, 90% of surveyed investors are of the opinion that the proportion of higher risk investments will increase. This is why B cities have also become increasingly interesting for investors. “Investors will continue to react by diversifying,” said Christian Schulz-Wulkow from Ernst & Young Real Estate. CBRE’S figures reveal that €18.1 billion of investment flowed into the retail real estate subcategory last year, pretty much double 2014’s figure (€9.2 billion). This was picked up by the IMMOBILIEN ZEITUNG on 10.03.2016. CBRE’s Jan Linsin emphasised that the availability of objects will be a crucial factor: “Demand for retail real estate in Germany from domestic and international investors will remain high throughout 2016, although it has to be said that availability of product, especially in the core segment, has become a severely limiting factor.” In response, many investors are increasingly turning to value-add properties. Anthony Martin of CBRE warned in the HANDELSBLATT on 11.03.2016 that, “Should the current stock market volatility evolve into a downward spiral, this could be a harbinger of a negative cyclical shift that would – after some delay – have a negative impact on real estate markets.”
Berlin’s office rental market gains momentum
Almost €23.6 billion was spent on German office real estate last year, representing a year-on-year increase of just under 40%. These figures were detailed by the IMMOBILIEN ZEITUNG on 10.03.2016 and the SÜDDEUTSCHE ZEITUNG on 11.03.2016. According to figures compiled by BNPP RE, around 3.6 million square metres were taken up in 2015, a result that comes in 20% higher than 2014’s figure.. Around 1.6 million square metres were let in just Munich and Berlin. It is possible that Berlin’s office market could soon break through the million-square-metre mark, and never look back again, speculates Carsten Ape from CBRE. At the moment though, Munich is strategically more important: “Berlin has been picking up recently, but Munich’s take-up has been stable for ten years. The city has a broader sector mix than Berlin and offers a higher standard of living.” Nevertheless, demand in Berlin has already outstripped supply. As a result, would-be tenants are increasingly being drawn into bidding wars, said Christian Leska from Savills. Approximately 950,000 square metres of office space was let during 2015. This is 20% more than in the year before. High levels of demand have attracted more and more big players to the market. These were able to lease space in large office complexes without any drawn out pre-letting processes. Matthias Hauff, broker at CBRE, also confirmed that completion figures for offices in Berlin are lagging far behind demand. Of the 234,800 square metres completed in 2015, a mere 16% was developed speculatively. Similar increases in demand were reported in (+60%) and Munich (+20%). In contrast, lettings in Hamburg, Frankfurt and Stuttgart were only moderately higher than in 2014.
€1 billion for Kaufhof
The headline on the front page of the HANDELSBLATT on 11.03.2016 revealed, Hudson’s Bay (HBC) plans to invest €1 billion in Kaufhof over the next five to seven years. The investment programme will begin with the modernisation of the Galeria Kaufhof stores in Düsseldorf, Stuttgart and Frankfurt. “Clearing the backlog of investment is the right course of action if market share is to be regained,” said Joachim Stumpf from BBE Handelsberatung.
International investors target German logistics real estate
Transactions involving warehouse and logistics real estate in Germany have almost doubled over the last six years, reported the IMMOBILIEN ZEITUNG on 10.03.2016. While investment amounted to just €1 billion in 2010, the total had reached €4 billion in 2015. A majority of investment is attributable to foreign investors. According to CBRE international investors are responsible for 62% of the increase in transaction volumes. Logistic real estate has gained I attractiveness, particularly among Asian investors, explained Kai F. Oulds, Head of Logistic Investment at CBRE Germany. Thanks to sustained high demand, space turnover in the warehouse and logistic sector climbed to around six million square metres.
German hotels become more lucrative
Transactions involving German hotels totalled €4.4 billion last year, recording yet another sizeable year-on-year increase, reported the IMMOBILIEN ZEITUNG on 10.03.2016 and the SÜDDEUTSCHE ZEITUNG on 11.03.2016. 2014 had just seen transactions surpass the €3 billion mark. This had already put the figures for 2006 and 2007 (€2.3 billion in each year) in the shade. Since 2012, investment in German hotels has more than tripled. Not only this, but according to CBRE the €1.5 billion of transactions in the fourth quarter alone matched the full-year totals for most years. The increase is largely due to the fact that, at around 5%, the sector’s yields are higher than in other asset classes such as the office sector. Brokers that specialise in hotels are unanimous in their assessment: demand for German hotels is set to remain high and may even increase this year.
Landlord mounts legal challenge against the Mietpreisbremse
As revealed by the FAZ on 18.03.2016, a Berlin landlord is mounting the first legal challenge against the Mietpreisbremse rental price brake. Arguments about the effectiveness of the rental price brake continue, particularly as there has been no definitive proof of the legislation’s impact on the rental housing markets in 300 towns and cities since it was introduced last year. The German Tenants’ Union has warned that it is far too early to draw any conclusions. In contrast, Haus & Grund is supporting the legal challenge as it views the rental price brake as counterproductive because, above all, it helps would-be tenants in higher-income brackets to find cheaper apartments. Furthermore, popular neighbourhoods would only become more attractive if rents were frozen. This would would only serve to speed up the gentrification process.
Housing shortage greater than forecast
DIE WELT on 17.03.2016, followed by the FAZ on 18.03.2016, highlighted the fact Germany’s housing shortage is greater than assumed. If demand is to be met, around 500,000 new apartments need to be built across Germany each year until 2020. This is the result of a study carried out by the University of Freiburg on behalf of the IVD. So far, the federal government has based its plans on a requirement of 350,000 new apartments per year. And yet this is nowhere near enough, said Michael Schick from the IVD. With its forecast, the IVD wants to show just how dramatic the situation really is and highlight the considerable need for increased action. Construction is the only truly effective way to counter the escalating housing shortage in Germany. “Last year’s figures show that only 228,000 new apartments were approved in the first three quarters of last year. The figures for the year as a whole will probably not exceed 300,000. That’s a deficit of around 200,000 apartments,” criticised the IVD’s President. The study reveals that the influx of refugees is having a greater impact on population figures than was originally thought. The study is based on assumptions made by the Federal Office of Statistics that long-term net migration will add around 200,000 to Germany’s population each year. This will reach a peak in 2037, by which time the population will have grown by two million. From 2043, the population will begin to decline once more. Demand for new apartments in Germany’s western cities has been calculated at 422,000 per year, with almost 72,000 new apartments needed each year in the country’s eastern cities. Schick has suggested that the distribution of refugees across Germany needs to be reorganised. There are currently vacancies in a number of regions and these could readily be exploited to provide housing for refugees. “We don’t just need to reactivate the social housing sector, we need to address the entire housing market if we are to stand any chance of satisfying the high levels of demand created by the influx of refugees,” demanded Schick.
Housing construction offensive approved
According to the IMMOBILIEN ZEITUNG on 17.03.2016, Germany’s Federal Cabinet has approved a ten-point plan designed to boost the construction of new housing across the country. In order to rapidly increase the amount of land available for the construction of affordable housing, the plan proposes that regional authorities should relax the guidelines by which they supply discounted land and that municipal budget laws and planning permission processes should be adjusted and harmonised. The goal is for unified planning and approval procedures along the lines of the central government’s Model Building Regulations. In parallel, Federal Construction Minister Barbara Hendricks (SPD) wants to focus more closely on the energy concepts for entire residential neighbourhoods and improve the way in which Federal Energy Saving Regulations (EnEV) and the Renewable Energy Heat Act (EEWärmeG) work in combination. The latter of these has come in for sharp criticism from the construction industry as it has driven construction costs higher and caused delays in getting new housing projects up and running. For this reason, a scientific study has been commissioned to examine the effectiveness of current regulations and assess their impact on housing construction costs. The results of the study are expected in May.
Germany has become a country of immigration
As reported by the IMMOBILIEN ZEITUNG on 17.03.2016, the German housing market is set to drift further apart. This is one of the results of the “Life in Germany 2045″ study released by Prognos on behalf of Allianz. It is expected that the ten largest metropolitan regions will be the biggest beneficiaries of the forecast population growth. The winners also include the regions around the Alps and Germany’s coasts, at least as far as the country’s older generations are concerned. While demand for housing in metropolitan areas is set for continued growth, structurally weaker regions face a battle with declining populations. Germany is becoming an immigration country and will experience population growth for the next thirty years. By 2030, there will be an additional two million households. As a result, there will be a corresponding shortage of two million apartments in economically strong urban areas and university towns.
Attics offer potential housing reserves
According to a joint study published by the Technical University in Darmstadt and the Pestel Institute, more than 1.5 million additional apartments could be created in Germany via an extensive loft conversion programme. The study was highlighted by the FAZ and DIE WELT on 16.03.2016. Exploiting this potential would be best suited to areas with strained housing markets, such as big cities, metropolitan areas and university towns. The study’s calculations are based on an average of 85 square metres per apartment. Adding additional storeys to 580,000 apartment buildings built between 1950 and 1990 would enable the creation of around 1.12 million such apartments, with the potential for a further 420,000 on properties built before 1950. In order to fully exploit this potential, the government would need to create suitable incentives, such as special depreciation allowances for vertical extensions.
Calls for a “moving out bonus”
Andreas Ibel from the Federal Association of Private Housing and Real Estate Companies (BFW) called for a “moving out bonus” (“Freizugsprämie”) in DIE WELT on 16.03.2016 in order to promote home-ownership in Germany. According to the proposal, tenants would be paid a bonus for giving up their tenancy to create a condominium. Ever since the owner-occupier housing subsidy in 2006 was withdrawn in 2006, there has been a lack of an alternative incentive. The “moving out bonus” could be just the alternative that is needed to provide relief to housing markets in metropolitan areas. Housing subsidies of €1,024 for couples and special depreciation allowances have so far been little more than the proverbial drop in the ocean.
Prices for premium real estate vary by location
According to a report published by Engels & Völkers, €13 million was the highest price paid for a single luxury property in Germany last year, revealed DIE WELT in an article on 15.03.2016. There were however significant price variations across the country’s top locations. In Hamburg, where the top price was the €13 million mentioned above, the average price for luxury real estate was €3.1 million; in Munich luxury property averaged €4.5 million. In contrast, average prices in Berlin, Düsseldorf, Frankfurt, Cologne and Stuttgart ranged between €1.5 million and €2.1 million. The top prices paid in Cologne and Berlin were €6.3 million and €5.6 million respectively. None of the remaining three cities registered prices of more than €3.5 million. The different price levels can be explained to some extent by the shortage of building land along the Elbe and Iser rivers, which has driven prices upwards. “In Hamburg and Munich there are a number of large companies that have immense requirements for space,” explained Peter-Georg Wagner of the IVD. Frankfurt is primarily home to financial institutions who feel most comfortable in skyscrapers. This is why Frankfurt has a healthier supply of building land for housing than the other cities. Prices for land for detached houses in Munich have risen by 4.6% over the last twelve months, confirmed Professor Stephan Kippes, Head of the IVD’s Institute for Real Estate Research in Munich. Nevertheless, demand will remain high. Berlin in particular is attracting increased attention from international investors. Although the prices for luxury apartments at the top end of the market are now approaching the levels seen in Hamburg or Munich, they are still relatively inexpensive in comparison to the prices in world cities such as London or Paris. For this reason, Berlin offers the greatest potentials for value appreciation.
Berlin’s property prices increase
9,200 more Berliners left the city to make their homes in the countryside than moved in the opposite direction from Brandenburg to Berlin. This was reported by the IMMOBILIEN ZEITUNG on 17.03.2016. According to the Housing Market Report released by Berlin’s IBB Investment Bank, this is the highest figure since 2005. The trend has a lot to do with the continuous increases in asking rents in the city. In central districts within Berlin’s S-Bahn ring, there are very few apartments available for rents of less than €10/m² per month. In comparison to 2014, advertised rents across Berlin rose by 6.7% last year, climbing to €8.80/m². The highest advertised rent was reported in the district of Friedrichshain-Kreuzberg at €10.99/m², with the most affordable at €5.75/m² in Hellersdorf-Marzahn. The price segment under €7/m² made up just 22% of all advertised rents across the city and only 1% were for apartments with rents of less than €5/m². House prices have also risen. The average house price increased to €345,200 (2014: €324,000). In the condominium segment (newbuild and existing), average prices fell in Q3 and Q4 2015 for the first time in years, with the median price dropping to €3,426/m² by the end of 2015. The median asking price for newly built condominiums was €4,343/m² at the end of the year. For existing condominiums, the median asking price had levelled out at €2,919/m². 64% of the condominiums advertised during 2015 were priced at €3,000/m² or more.
iFunded refurbishes apartment buildings in Berlin
As detailed by the BÖRSEN-ZEITUNG on 16.03.2016, the real estate crowdfunding platform iFunded has launched its first project in Berlin. A subordinated loan will enable investors to participate in the refurbishment of a listed apartment building at Strausberger Platz. The issue volume has been set at €1 million and the minimum subscription for investors at €250. This small sum has been chosen in order to develop trust and confidence in the platform and its subsequent investment projects, explained iFunded Managing Director Michael Stephan. Minimum subscriptions will later be raised to between €4,500 and €7,000, matching the averages of other crowd investment platforms.
Record year for Munich’s real estate market
According to the IMMOBILIEN ZEITUNG on 17.03.2016, Munich’s real estate market grew by 20% last year, with transactions reaching a record €12.6 billion. The figures have been revealed in a preliminary report published by Munich’s Land Values Committee. The number of property transactions may have fallen by 3%, but this is to be taken purely as an indication of insufficient supply. The major drivers of the €2.1 jump over the previous year were the increase in office and commercial real estate transactions, along with significant price increases in the condominium segment.
Real estate in Düsseldorf is officially overpriced
The Committee for Land and Property Values in Düsseldorf has published its figures for 2015, revealed the IMMOBILIEN ZEITUNG on 17.03.2016. The figures show that the number of individual real estate transactions in the city fell by 17% last year to 4,974. At the same time, and in the same segment, the monetary value of the transactions rose by 18% to €4.33 billion. The extent of price increases varied across the different market sub-categories. Land for detached houses was 3% more expensive over the 12-month period, whereas land for apartment buildings and commercial properties was 10% more expensive. Prices for detached and semi-detached houses rose by an average of 3.4% with detached houses up by 4.8%. Prices for multi-family houses added 8.7%. Depending on when they were built, condominiums recorded price increases of between 6.8% and 15.5%.
German retail real estate more in demand than ever before
Transactions involving retail real estate in Germany totalled €18.1 billion last year, doubling the previous year’s total, wrote Jan Dirk Poppinga from CBRE in the IMMOBILIENWIRTSCHAFT 3/16. The last time the market reached such heights was back in 2006. At the same time, the market share of retail properties as a proportion of all commercial real estate transactions rose from 23% in 2014 to 33% in 2015. A growing number of international investors have confirmed their belief in the economic stability of the German retail market. With investments of almost €10.1 billion, international investors increased their share of the investment market from €4.5 billion (49%) in 2014 to 56% in 2015. There were therefore more international investors active in the market for German retail real estate than German investors. Net initial yields have come under increasing pressure as a result of the surplus of capital in the market. Among core shopping centres in prime locations, yields had fallen by 02.% by the end of the year. This has led to increased interest in value-add objects and previously overlooked locations and retail segments.
International investors love commercial real estate in Germany
According to the HANDELSBLATT on 15.03.2016, prices for condominiums in Germany’s biggest cities and growth regions have risen by 40%. The increases have been driven by strong economic fundamentals and low interest rates, explained Christian Schulz-Wulkow from Ernst & Young Real Estate. Ever since the financial crisis, international investors have viewed Germany as a safe haven. International real estate investors are increasingly turning to commercial property in Germany. This is an asset class with an excellent reputation across Europe, a fact confirmed by an annual CBRE survey made available exclusively to the HANDELSBLATT. Germany was rated as the most attractive market in Europe, earning the votes of 17% of the survey’s respondents. The share of investment in commercial real estate in Germany attributable to international investors has risen from 20% before the financial crisis to 60% last year. Investment in Germany’s commercial real estate market rose by 40% in 2015. Given the lack of available product, it is not expected that any new records will be set this year.
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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 Helsinki
Finland has successfully advanced into a highly developed industrial nation, and since the mid-nineties it has been one of the most competitive countries in Europe. Helsinki is the engine of the nation’s economy, and accordingly posts the strongest rate of value added expansion in Finland. Developments in IT-related fields – both information and communication, and electrical engineering – have been especially remarkable. In addition, biotechnology has emerged as a dynamic sector. While this rapid expansion in technologically innovative fields has attracted great attention, the sector of financial and business-oriented services has registered the highest growth, and this sector’s share in Helsinki’s production is significantly above the national Finnish average. Although Helsinki is Finland’s capital and administrative center, the slowgrowing public sector has, of late, accounted for only a below-average share of total output.
Feri rates Helsinki as a business location “AA”, which is unchanged compared to the 4th quarter 2014. It translates into “high potential, low risk”. With this rating result the city ranks 8th in the comparison of European Metropolises.
Office Real Estate
Regarding office real estate Feri rates Helsinki “C”, which is unchanged compared to the 4th quarter 2014. The city ranks 14th among office locations of European Metropolises. Feri awards the office top locations “C” and the side locations “C”.
Helsinki, with around 8 million m2 of office space, is the fourth largest Scandinavian office market after Stockholm, Copenhagen, and Oslo. It is Finland’s commercial center. The most desirable locations – due to very good accessibility – are in the city center (CBD). Other attractive office locations are in Ruoholati, in Espoo, and in the business parks in the vicinity of the airport (Aviapolis). The main sectors generating demand for office space are business-related services, notably including IT services, as well as public administration, since Helsinki is Finland’s national capital. As an investment market Helsinki displays only below-average liquidity and transparency.
The economy of the Helsinki Metropolitan Area is shrinking since 2012. Just for this year we expect a slight economic growth. Accordingly, demand for additional office space in Helsinki was seriously weak during the past two years. Existing turnover were driven by cost-containment and efficiency gains. Despite considerably lower construction activity as a result of the crisis, due to a weak demand-side the vacancy rate will rise further in 2015. Rents will therefore begin to recover not before 2016 stimulated by the turnaround of the labor market. We thus estimate an average yearly increase in office space rents of 1-2%.
In the euphoric phase of the last investment cycle, net initial yields in Helsinki’s CBD sank to less than 5 percent. The subsequent correction led to a correction of average rental yields by over 120 basis points. The transaction volume sank from a peak of 6 million to less than 2 million in 2009. Since the beginning of 2010, investor interest has gradually increased, and has led to a slow reversal rental yields trend. Hence there should be some further potential for yield compression over the course of the next few years, particularly because the current rental yields in the economically stable European countries already has fallen below their pre-crisis level.
Due to the severity of the financial crisis in Helsinki and a strong and prolonged recession in following years, its office market experienced an especially severe correction. So Helsinki belongs to the laggards of the current valuation cycle. However, since the recent mid-year investor interest has strengthened again. Hence, initial yields have decreased further. The future potential for further yield-shift will remain moderate over the years to come. Capital growth will be mainly influenced by the expected positive development of rents from 2016 on.
Retail Real Estate
In the comparison of European Metropolises regarding retail real estate Helsinki placed 9th with a rating result of “A”, which is unchanged compared to the 4th quarter 2014. Feri awards the retail top locations “A” and the side locations “A”.
Almost half of the Finnish retail space is located in Helsinki. Thus, the metropolitan area attracts many natives. Tourists, especially Russians, bring additional purchasing power to the region. The most expensive rents can be observed in the inner-city high-street Aleksanterinkatu. Esplandi, which runs parallel, is especially sought after by retailers of luxury goods; here, demand also outruns supply. In the recent past newly built retail space in all locations was absorbed pretty well. At present only a small amount of retail space is under construction. On these grounds, at least for the time being, supply is expected to stay limited. Notwithstanding the recent drop in consumer confidence rents are therefore expected to rise especially in top-locations.
Residential Real Estate
When it comes to residential real estate, Helsinki placed 24th among European Metropolises with a rating result of “C”, unchanged compared to the 4th quarter 2014.
Since the mid 1990s demand for rental apartments has exceeded the supply. In-migration to Helsinki from other parts of Finland, as well as foreign immigration, helped to drive up demand, which in turn pushed rents noticeably upward, especially for new apartments in inner city areas. Through the coming years, Helsinki’s pattern of decisively positive net migration (both domestic and foreign) is anticipated to remain in place. Thus, one can expect that market conditions in which demand outruns supply will be sustained into the medium term. As a result, rents for both new and existing apartments are projected to continue increasing during the coming years.
In Helsinki’s housing property sales market, as in its apartment market, positive net migration induced ongoing healthy demand, which in turn sparked rising prices. Moreover, Finland’s home ownership ratio is quite high. Prices in all segments – detached single-family houses, town houses, and condominiums – rose sharply in the second half of the 1990s, but the major economic downturn that set in early in the new millennium halted this upturn. For the years to come, though, one can expect renewed strengthening of demand and thus a resumption of steadily rising prices. But the rates of increase will be much lower than those registered in the past.
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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