According to Savills data, approximately €4.9 billion was invested into residential portfolios in Germany in the first quarter of 2014, up on €3.77 billion recorded in Q1 2013.
According to Savills data, approximately €4.9 billion was invested into residential portfolios in Germany in the first quarter of 2014, up on €3.77 billion recorded in Q1 2013. The international real estate advisor highlights that this strong turnover is predominantly the result of three major transactions. These include Deutsche Annington buying 30,000 units from Vitus Group for €1.4 billion and the Dewag Portfolio of 11,500 units for just below €1 billion and the purchase of the DGAG portfolio by Buwog (Immofinanz Group) for approximately €900 million. These three deals alone generated two thirds of the quarterly turnover.
Karsten Nemecek, managing director corporate finance – valuation at Savills Germany, says: “The largest transactions anticipated for 2014 have completed in the first quarter pushing up turnover and consequently we are expecting lower investment volumes in the remaining three quarters. Another few packages in the three-digit million range will change ownership over the coming months and are likely to push annual turnover above the €10 billion mark, representing another strong year for the market segment. However, as the number of billion-euro transactions is likely to remain low we do not expect this year’s volume to reach the very strong level in 2013 when almost €14 billion was transacted. Overall, the parameters for the residential asset class continue to be very favourable with demand for German residential packages continuing to exceed supply this year.”
Savills highlights that these large transactions have boosted average transaction sizes observing that, whilst a total of 40 packages changed ownership throughout the first three months of 2014, eight less than in Q1 2013, these portfolios were almost five times larger than in 2013, comprising of just below 2,400 units on average. The firm notes that overall 95,500 apartments were sold in Q1 2014, representing an approximate four-fold increase year-on-year. Going forward Savills believes the average transaction size will once again decrease.
Due to the two major acquisitions of Deutsche Annington, listed property companies represented the largest group of buyers in Q1 2014 generating an investment volume of circa €2.9 billion, according to the research. Housing associations (approximately €0.9 billion) along with special funds and other fund/asset managers (approx. €0.1 billion each) follow behind. Domestic buyers accounted for three quarters of the total transaction volume, which the firm notes is in line with their share in 2013. On the sell-side US investors dominated accounting for a 41% share of the sales volume with private equity investors being the major players, according to the firm.
Overall, irrespective of origin, private equity funds represented the largest group of sellers and generated a sales volume of approximately €1.1 billion with listed property companies / REITs following closely behind at circa €1 billion. Savills suggests that this data is evidence of two ongoing trends, that domestic buyers are increasing their ownership of German residential portfolios and that an increasing volume of residential stock is listed and tradable on the stock exchange. The firm believes that these trends will continue throughout the year.
A further trend identified by Savills over the past few months is the increasing presence of regional cities in the current residential investment boom, outside Germany’s top six metropolitan areas of Berlin, Hamburg, Cologne, Düsseldorf, Frankfurt and Munich. For example, for the first time in a number of years, Berlin was not among the five top locations in terms of transaction volume in Q1 2014. Instead Kiel (circa 15,100 transacted units), Bremen (approximately 10,200 units) and Mönchengladbach (circa 6,100 units) recorded the largest volumes.
Matthias Pink, in the research team at Savills Germany, comments: “Due to strong investor competition and the resulting rising prices in Germany’s top markets the smaller cities are becoming increasingly attractive to buyers. In addition, the government’s initiative to cap rental increases is likely to be restricted primarily to the larger conurbations, offering an additional incentive to invest in smaller cities and medium-sized towns. We expect to see these locations represent a greater market share going forward.”