Transaction are becoming fewer and smaller; very strong focus on the top seven cities
- Transaction volume of €2.7bn (-52% compared with Q1 18)
- Prices up by 12% over the last twelve months
- Above-average purchasing activity from municipal housing companies
- German purchasers accounted for 92% of the transaction volume
The transaction volume in the German residential investment market (transactions for at least 50 residential units) totalled approximately €2.7bn during the first quarter of the year. This represents a decline of 52% compared with the opening quarter last year. If the Buwog acquisition from March last year is excluded, then this year’s opening quarter is in line with last year's. The top seven cities accounted for more than 62% of the transaction volume, which is significantly above the five-year average (40%). “Investments in German rental apartments are currently becoming increasingly attractive to international investors, which could further increase competition among bidders for available properties,” says Karsten Nemecek, Managing Director Corporate Finance – Valuation for Savills Germany, adding: “The continued very good fundamentals, high market liquidity and high political stability of Germany are ensuring high demand particularly from risk-averse investors, such as pension funds and insurance companies.”
A total of approximately 13,000 apartments changed hands during the first three months, which is around 71% less than in the corresponding period last year. Average prices of apartments transacted rose by 12% over the last three months to stand at €137,100 per residential unit. “The further increase in average prices are, on the one hand, a consequence of the strong focus on the top seven cities and the high proportion of development acquisitions. On the other hand, the price levels also reflect the continued expectations of rental growth among investors,” says Matti Schenk, Senior Consultant Research Germany for Savills.
Acquisitions of development projects accounted for approximately 30% of the transaction volume in the first quarter while around half of the investment volume in developments was attributable to the top seven cities. “Significantly more apartments in apartment buildings are now being approved and built in the top seven markets than just a few years ago. In view of the record low vacancy rates, which are as low as 0.5%, there is still no significant relief to the strain in the rental apartment markets on the horizon,” says Schenk, adding: “This is likely to contribute to the strong investor focus on major cities.”
By far the largest transaction in the first quarter was the acquisition of more than 2,900 apartments from Akelius by Deutsche Wohnen for approximately €685m. The second largest transaction was the acquisition of 1,800 apartments in Berlin’s Kosmosviertel area for around €250m by state-owned housing company Stadt und Land. Berlin also produced the third largest transaction in the acquisition of a development project near Charlottenburg Palace by the pension fund of the Hesse State Medical Association. Overall, however, the investment market was relatively fragmented. The trend towards fewer and smaller transactions continued in the first three months of the year, with the last twelve months producing around 12% fewer disposals year on year. The average transaction over the last twelve months comprised 373 apartments, which is the lowest figure since August 2011.
Domestic purchasers dominated the German residential investment market even more strongly than in recent years during the first quarter, accounting for almost 92% of the transaction volume, which is higher than the five-year average (78%). While foreign investors are highly interested in the German apartment market, they are evidently often unable to secure direct investments. German players also dominated on the vendor side, accounting for 65% of the transaction volume.
In terms of investor groups, housing cooperatives accounted for an above-average proportion of purchases during the first quarter. These were responsible for around 29% of the transaction volume, representing the second most active purchaser group behind property companies. State-owned housing cooperatives Stadt und Land (state of Berlin), SAGA (state of Hamburg) and Nassauische Heimstätte (state of Hesse) also increased their holdings via acquisitions during the first quarter. “In many areas, the growth of municipal housing stocks is currently an objective of political decision-makers,” says Schenk, adding: “To achieve this objective, some municipal companies are not only relying on building new housing but are also enlarging their holdings by acquiring existing properties or turnkey developments.”
In view of the high investor demand and larger supply of development projects, there is much to suggest that 2019 will also produce an above-average transaction volume. In the acquisition of BGP Group by funds of ZBI and Union Investment, the second quarter has already started with one of the largest apartment transactions of recent years. Savills expects the transaction volume for the full year to come in modestly below last year’s total.