GERMANY’S REAL ESTATE BOOM
Amid a shaky Eurozone and a falling Euro, the continent’s economic powerhouse emerges as a stable and attractive real estate destination.
Consider this. In the six months from January to June this year, funds to the tune of 24 billion euros have poured into Germany’s commercial real estate alone, registering a remarkable increase of 40 percent compared to the same period last year. Interestingly, nearly half of this capital came through foreign investments, with France, USA, UK, Canada and Switzerland leading the charts. Similar stories of optimism and opportunities abound across other sectors of the German real estate market, right from residential and retail to logistics and hospitality. “We are in the middle of a real estate boom,” says Helge Scheunemann, National Director & Head of Research at Jones Lang LaSalle Germany, adding that on one hand the historically low interest rates are facilitating good lending conditions and on the other, the current low yields for alternative investments such as the German government bonds are ensuring that real estate remains very attractive compared to other investments.
Economy in overdrive
At the core of the sustained boom in the German real estate market is the country’s stable economic condition and solid fundamentals. Germany recovered quickly from the global financial crisis in 2008 and the strong momentum has continued ever since, right into 2014, when Germany clocked a growth of 1.6 percent. According to current Consensus Economics forecasts, this positive trend is likely to improve further in 2015 with growth reaching 1.8 percent. Private consumer spending has increased, government spending has risen and current unemployment level is just 6.8%. “With some 80 million inhabitants and a low unemployment rate, there is a high consumer demand and above-average purchasing power,” says Inga Schwarz, Associate Director & Head of Research, Cushman & Wakefield Germany, adding that these factors contribute to stability and growth.
Germany’s economy and industrial structure is diversified, with not one but many economic hubs spread across the country. Big cities like Berlin, Frankfurt, Hamburg and Munich are economic powerhouses for their entire regions, with each city having its distinct businesses and unique economic features. For instance, while the capital Berlin is a hot spot for start-ups and Frankfurt is the financial centre, Hamburg is home to new technology outfits and Munich is the automobile hub.
“While these large cities are the headquarters of many global corporates and medium-sized companies with global presence, Germany’s geographic position in the centre of Europe also makes it an important logistics hub,” says Cushman & Wakefield’s Schwarz, adding that the diversified economy and strategic location lend stability to Germany’s economy, and this combination of factors has made Germany a trusted safe haven for many local and international investors.
Germany is the largest economy in Europe, with trusted regulations and a professional environment. “Given the state of the Eurozone, there are not many other European countries where investment is relatively secure. As alternative investments in the capital market are rare, money is now turning to Germany’s real estate in a big way,” says Ursula-Beate Neisser, Head of Research at DTZ Germany.
Big 7, the best bet
Though Germany has a healthy real estate potential in tier-II and tier-III cities too, the country’s seven big cities – Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart – continue to be the mainstay of its real estate activity, and the best bet for investors. While conventional industries like automobiles, engineering and technology continue to give stability to the German markets, new businesses are driving the growth of the real estate market.
“For instance, the large e-commerce giants like Amazon and Zalando are creating huge new demand – on one hand for the office leasing market as they are looking for office space within the cities for their administration and on the other hand for logistic warehouses within as well as outside the cities,” says JLL’s Scheunemann. Berlin alone is witnessing a surge in demand for small offices and high street stores from businesses like logistics, fashion and retail. “Not to mention the huge demand for residential spaces within the city by the professionals engaged in these businesses who no longer prefer long commutes from the outskirts but prefer staying in the heart of the city, even if in a smaller space,” says DTZ’s Neisser, adding that the high demand is reflected in the steeply rising rental prices which are expected to rise further as the population in these big cities increases in the years to come.
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