According to international real estate advisor Savills, with over 89,000 residential units totalling €5.66 billion having changed ownership the investment market for residential portfolios continued its rally in the first half of 2013.
- Domestic buyers dominate
- Rise in deals of 1,000 units
- €10 billion mark for 2013 is realistic
According to international real estate advisor Savills, with over 89,000 residential units totalling €5.66 billion having changed ownership the investment market for residential portfolios continued its rally in the first half of 2013. Some 60 investors were active on the buy-side in H1 2012 compared to over 70 in H1 2013 with a 40% rise in the number of transactions to 87. Karsten Nemecek, Managing Director Corporate Finance – Valuation, says: “Compared to 2012 the residential portfolio market gained further ground: Firstly, significantly more deals were closed and secondly a considerably higher number of buyers appeared in the market than had been the case the previous year.”
While the first half of 2012 saw four transactions of over 20,000 residential units each, Savills reports only one transaction in this size category took place during the first six months of 2013, namely the sale of the GBW portfolio. By contrast the number of transactions of over 1,000 residential units each almost doubled from nine to 16.
The number of transacted property developments likewise rose significantly. Throughout the first six months 13 developments were sold to an end investor prior to completion with the investment volume of this sector totalling over €450 million. In H112 only three property developments totalling circa €115 million had been sold. More than half of the developments transacted this year to date are located in Berlin, Düsseldorf and Munich.
Savills data shows that Berlin represented the focus of activity in this sector, not only in terms of the number of property developments sold but also for the total number of transacted residential units. As had been the case in the preceding year with a total of over 17,500 the majority of residential units by far were sold in the German capital, marking a share of approximately 13%. Aside from Berlin, Munich and Dortmund with transaction levels of circa 9,500 and 9,000 units respectively, as well as Duisburg with over 6,500 units, were the focus for investors.
As in the past year German buyers continued to dominate the market activity in H1 2013. Domestic buyers’ share of transaction volume amounted to 75% in 2012 and rose further in 2013 to over 80%. Most of the remaining 19% was attributable to investors from other European countries. The decreasing share of foreign investors is also a result of the further rise in values, says Savills. On average buyers paid €63,000 per unit in H1 2013 – a 20% rise year-on-year.
Matthias Pinks, responsible for research at Savills Germany, comments: “Rising prices inherently come along with dropping numbers of potential buyers, and particularly the more opportunistic Anglo-Saxon investors are seen more on the sell-side than on the buy-side in the current market cycle.”
The report states that private equity funds sold residential real estate worth almost €300 million throughout the first half of the year. Along with banks and developers they were among the three largest groups of vendors. Buyers were primarily listed property companies, insurance firms and pension funds as well as open-ended special funds. In bidding processes these players benefit from the favourable financing instruments available to them. To some extent insurance companies and pension funds operate without any debt while listed property firms are able to raise additional equity by way of a capital increase or to acquire debt at low interest through bond issuances.
Transaction activity is likely to remain buoyant throughout the second half of the year as demand continues to be strong and several portfolios of over €100 million are in the market or scheduled to be launched. Due to a lack of deals in the size bracket of the GBW transaction the investment volume is likely to come in slightly below the 2012 level, nonetheless the €10 billion mark is realistic for 2013, comparable to 2012’s €10.45 billion total.
“For the foreseeable future reasonable alternatives to real estate investments do not seem to be available to risk averse investors and German residential property will remain a good choice despite higher prices”, concludes Nemecek, who suggests demand will continue to be strong beyond 2013 and investors with intentions to sell their portfolios should take advantage of the current market environment.