Adding storeys to buildings to create living space
On 20.07.2017, the IMMOBILIEN ZEITUNG reported on the growing popularity of adding stories to existing buildings as a quick and affordable way to create new living space and attractive penthouse condominium units. Planning applications for this type of development have surged – the Federal Office of Statistics revealed that 52,300 permits to create new apartments via loft conversions and roof extensions were issued in 2016. This is one sixth of all apartment approvals for the year (375,000) and is the highest figure since 1998. In addressing the shortage of available land in Germany’s major cities, Patrick Herzog-Smethurst of DKW Group said that his company always assesses the potential of urban in-fill, densification and upward extension when weighing up acquisitions. He explained that the most common densification strategies in Berlin involve adding storeys to existing buildings or extending off-street buildings. Adding storeys is often the preferred option. Many in the industry, including residential portfolio and fund managers, view it as less expensive and time-consuming. Wertgrund has long converted or extended individual properties to add living space, “but now, as property prices keep on rising, it has become an increasingly attractive proposition across the board”, said Timo Holland from Wertgrund. In Ingolstadt, Wertgrund has created 24 units, adding storeys to its existing buildings, and is now reviewing its entire residential portfolio to identify further potential. In Berlin and Wedel, near Hamburg, Wertgrund plans to create 35 units in this way, with construction costs of between EUR 2,400 and 2,500/sqm, and rental prices of EUR 11.50 to 12.00/sqm. Wertgrund has thus far employed conventional construction techniques, but is now exploring serial construction with wood as an alternative. Wood is an ideal construction material, both in terms of structural engineering and speed of construction. Deutsche Invest Immobilien (d.i.i.) created 70 new apartments at three properties in Essen and Hamburg, and is planning more in Düsseldorf, Wedel and Hamburg-Fischbek.
Seniors are increasingly independent, and demanding
On 15.07.2017, DIE WELT reported that seniors increasingly have higher housing expectations and examined the range of existing solutions to meet their needs. For instance, DPF AG’s ‘Tertianum Premium Residence’ in Berlin and Tertianum residences in Constance and Munich offer older residents the highest standards of independent living. “We want to give our residents a home full of opportunities, similar to what they have come to know and love from the world’s finest hotels”, said Felix von Braun from DPF AG, whose company experiences is senior customers as confident and with high expectations, not as old people in need of care. Even seniors who cannot afford premium standard housing now have different expectations of the environments in which they live than previous generations. This was a key finding of a new survey of people aged between 50 and 65 who live in major cities published by the Cologne Institute of Economic Research (IW). A majority of the survey’s participants said they could imagine living in a multi-generation building, or having a room in a shared apartment. Experts from empirica confirmed that independence has become a key housing criterion. Terragon’s Michael Held highlighted a study from his company which demonstrated that building to accessibility standards only adds one percent to the construction costs of a new residential development: “Owner-occupiers benefit from high levels of comfort through to an advanced age, and investors profit from improved and longer-term rentability”. Assisted housing also offers significant potential. According to Terragon, 58% of senior households could afford to pay EUR 1,000/month for their housing, including utilities and service charges.
Alliance for Affordable Housing takes stock
During its final meeting of the current legislative period, the Alliance for Affordable Housing met with Federal Construction Minister Barbara Hendricks (SPD) for a progress review, which was reported as ‘mixed’, revealed the FAZ on 18.07.2017. One million apartments have been built and 100,000 more building permits were issued last year than in 2013, federal funding for social housing has increased threefold to more than EUR 1.5 billion, and a new zoning category, ‘urban area’, is one of the most significant zoning law updates in decades. Nevertheless, as the Alliance has not achieved all of its aims, Hendricks called for a constitutional amendment to allow the federal government to extend its funding of the social housing sector. She also sharply criticised municipalities, who have not always used these federal funds for their intended purpose. The failure to introduce new building energy legislation, together with the fact that 16 different building codes still apply across Germany, were also the target of sharp criticism.
Rising prices, falling yields
New figures from vdp Research and Stiftung Warentest have revealed that property prices continued to rise in 2016, with price increases gaining momentum in a number of German cities. This was reported by DIE WELT on 19.07.2017. An average condominium in a moderate location in Berlin, a category which now includes districts such as Wedding or Reinickendorf, currently costs approx. EUR 3,800/sqm. Across Berlin as a whole, property prices rose by 11 percent past year, and have risen by more than 50 percent since 2011, the fastest rate of increase anywhere in Germany. The rate at which condominium prices increased in Munich was even faster last year than in Berlin, despite the fact that prices started out at a much higher level. As a result, yields have been driven down to effectively 2 percent p.a. The vdp/Stiftung Warentest study analysed property prices in a total of 115 German cities and municipalities, with detailed results published in FINANZTEST 08/2017. Unlike many other price indexes, vdp analysed real purchase prices, which it collated from mortgage approval data. Prices continued to climb in Q1 2017 and the vdp price index ended the quarter 6 percent higher than at the same time last year. Condominium prices rose by 6.5 percent and new residential leases were up by 3.8 percent. Nevertheless, a study carried out by the Cologne Institute of Economic Research (IW) on behalf of Accentro has shown that owning property offers better long-term value for many households than renting a similar apartment or house.
Retail real estate investment surges
According to figures collated by the real estate services company CBRE, investment in German retail real estate in H1 2017 totalled roughly EUR 6.3 billion, 44 percent higher than at the same time last year. This was reported by the FAZ on 21.07.2017. The last time a similarly strong result was achieved was 2015. A striking feature of the results for H1 2017 is that investors primarily targeted their activities at markets beyond Germany’s Top Seven cities. This was mainly due to a scarcity of first-class product in the very largest cities, the investment pressure that many investors are under, and Germany’s strong reputation as an investment safe haven, combined with the attractiveness of many retail properties in secondary cities, which often boast long-term leases and have financially sound tenants, having benefited from years of subdued retail property construction. Hans-Joachim Lehmann from Warburg-HIH Invest Real Estate believes that subdued construction activity has had a similar effect on the retail real estate sector as on other property types, although yields of between 3.5 and 4.5 percent are still relatively high, adding to the attractiveness of investments in the sector. The only real threat to the value of German retail real estate is the potential of further rapid growth in eCommerce. Almost 10 percent of retail sales revenues were made by online retailers. Joachim Stumpf from BBE Handelsberatung expects nominal retail revenues to grow by 7.6 percent between 2016 and 2020, whereby only 2.2 percent of this growth will be achieved by brick-and-mortar retailers. This shift in the status quo will have grave consequences for the retail industry and the sector’s real estate, above all in small and medium-sized towns and cities. “The winners will be the top locations in the top 12 to 15 German cities”, said Frank Emmerich from CBRE. But even within this premium group, disruption is on the cards. More stores will have a ‘show room’ feel”, predicted Warburg-HIH’S Lehmann.
Price rises in Rhineland-Palatinate lose some momentum
As revealed by the IMMOBILIEN ZEITUNG on 20.07.2017, the IVD West’s latest price index indicates that the real estate market in Rhineland-Palatinate has cooled somewhat. Over the previous twelve months, condominium prices rose by 5.8 percent and detached house prices grew by 4 percent. Rents were up by 3.5 percent. “These are all substantial increases, but in previous years we saw double-digit growth in property and rental prices”, said Jürgen Vogt from IVD West. In Mainz, Trier and Landau, average prices still posted double-digit growth. There was no real movement in commercial real estate prices, while office rents added roughly 2 percent statewide.
Cologne's office rental market delivers respectable result
As reported by the IMMOBILIEN ZEITUNG on 20.07.2017, while a respectable enough volume of office space was newly let in Cologne in H1 2017, a general supply shortage meant that the total was lower than the strong result of H1 2016. Greif & Contzen reported new lettings of around 160,000 sqm, BNPPRE pegged the figure at 158,000 sqm and Savills reported 153,500 sqm. A number of market observers still believe that office market investment for the full year could top EUR 2.2 billion, a result that was last achieved in Cologne in 2015.
Developers criticise new procurement law
A new EY Real Estate survey of 100 private and public sector property developers revealed that new procurement laws, introduced in 2016, are too complicated. This was reported by the IMMOBILIEN ZEITUNG on 27.07.2017. A majority of the survey’s participants said that the legislative reform had failed to live up to legislators’ promises, namely that procedures for awarding contracts would be more efficient and easier. The ability to tender for services and goods digitally was the only aspect of the reform that was viewed positively, as it simplifies communication between tenderers and bidders. Roughly 65 percent of respondents said that procurement procedures are still to rigid and formalised.
Weighing up the parties' 'help-to-buy' proposals
On 26.07.2017, DIE WELT compared the potential impact of CDU/CSU and SPD proposals to promote homeownership. As the newspaper’s calculations demonstrated, the CDU/CSU’s plan would release significantly more federal funding than the SPD’s, and would therefore have a greater impact on the federal budget. At the same time, the CDU/CSU’s plans would also ensure that homebuyers wouldn’t need as long to become debt-free. The SPD plans to introduce single-agency restrictions on realtors in order to decrease homebuyers’ costs. The party’s manifesto would also restrict ‘help-to-buy’ payments to households below a specified income level. According to the SPD, this would eliminate the risk of financially stronger households benefiting at the expense of lower income households.
Overly strict mortgage lending regulations do more harm than good
An unpublished study from Oliver Lerbs, an economic researcher at Mannheim’s ZEW Economic Institute, in collaboration with Michael Voigtländer from the Cologne Institute of Economic Research (IW), which the HANDELSBLATT has viewed and featured in its 28.07.2017 edition, finds that the new instruments designed to regulate the mortgage lending market will actually do more harm than good. Using them could lead to “restrictive mortgage lending practices”. According to the HANDELSBLATT, the researchers found that this would make it increasingly difficult for younger households to buy property, which would be “worrying” given the importance of property ownership in retirement planning. Overall, there is a risk that Germany’s mortgage lending market would become “over-regulated”, stated the study’s co-authors, who concluded, “it is likely that the cost to society of applying the new regulations would outweigh any potential benefits”.
Frankfurt will be the biggest winner
The Center for Financial Studies (CFS) quarterly survey of the finance industry has revealed that 86 percent of respondents expect Frankfurt to be the biggest winner from relocations in the wake of the UK’s Brexit referendum last year. This was reported by the BÖRSEN ZEITUNG on 22.07.2017. Nevertheless, competition with other European cities is extremely intense, in particular with Paris. Only 20 of 100 London-based banks have so far published their relocation plans. Germany’s federal government, Hesse’s state authorities and the City of Frankfurt need to make greater efforts to take full advantage of the situation. Sixty-nine percent of those surveyed believe that London will retain its place among the world’s top three financial centres a decade after Brexit.
Frankfurt's prestigious office market
In comparison with Berlin and Munich, Frankfurt’s office rental market may not have delivered such strong results of late, but it benefits from outstanding locational qualities, reported the IMMOBILIEN ZEITUNG on 27.07.2017. Over the last five years, the average office rent has risen by 4 percent, while the prime rent has gained 15 percent. Since 2012, Munich’s office rental market has delivered increases of 12 percent and 19 percent respectively, whereas Berlin leads the pack with average office rents up by 24 percent and prime rents 32 percent higher. Frankfurt’s qualities relate more to its density of high-rises. More than half of the office space built in the city since 2012 is in office towers, and the city’s companies have demonstrated a strong interest in leasing space in these prestigious towers. Frankfurt is the only city in Germany with a real skyline, and therefore possesses international qualities that no other major German city can match. The prime rent in Frankfurt is just under EUR 40.00/sqm. Despite a 9 percent vacancy rate, 151,900 sqm of office space is currently either under development or in the planning pipeline. Developers are clearly optimistic and expect demand to increase. In the long run, Frankfurt is the only location that is really suitable for the finance and consultancy industries, and the same applies to ambitious FinTech start-ups.
Düsseldorf's office rental market delivers strong result
As revealed by the IMMOBILIEN ZEITUNG on 27.07.2017, Düsseldorf’s office rental market may not have set a new record in H1 2017, but it did deliver an above-average result. CBRE reported new lettings of 215,000 sqm, BNPPRE reported 205,000 sqm and Aengevelt placed the figure as high as 243,000 sqm. The strongest submarkets were Linksrheinisch, Kennedydamm and Seestern. This is because of Düsseldorf’s compact urban structure, explained Hubert Breuer from CBRE: “The submarkets outside the city’s central core boast similar locational parameters and good transport infrastructure – in many cases in combination with more moderate prices. The shortage of large, connected office space and building land in central submarkets has given secondary locations a clear boost”. For the year as a whole, Düsseldorf’s office space brokers expect take-up to total around 400,000 sqm.