‘It’s the best time to be an office developer’

The outlook for German offices is positive thanks to high demand and low interest rates

The outlook for German offices is positive thanks to high demand and low interest rates, delegates heard at Real Asset Media’s European Outlook Investment Briefing, which was held at PricewaterhouseCoopers’ Frankfurt office last week.

‘The beginning of the year was challenging because institutional investors were worried about higher interest rates,’ said Michael Becken, Managing Director, Becken Invest. ‘But as it became clear that interest rates would stay at current levels or lower, institutional investors have come back because the major asset class for the next few years will be real estate. For us as an office developer it is the best time’.

Michael Becken, Managing Director, BECKEN Invest GmbH, Christiane Conrads, Head of German Real Estate Desk, PwC Legal AG, Assem El Alami,Head of Real Estate Finance, International Key Accounts and Syndication, Berlin Hyp AG, Christopher Mertlitz, Executive Director , W. P. Carey Inc., Nils Skornicka, Managing Director Acquisitions & Development, Tishman Speyer, Germany and Christian Zilly, Managing Partner, Waterway Investments GmbHFrankfurt Outlook Keynote: Dominique Pfrang, Senior Manager, PwC

IW, the German Economic Institute in Cologne, calculates that the current interest rate environment will remain in place until 2050, providing a strong support to real estate for the foreseeable future.

‘Insurance companies have billions and that money is going into real estate,’ said Christian Zilly, Managing Partner, Waterway Investments. ‘This has repercussions for the office market, because with so much money around companies will seek huge buildings and values will probably go higher and higher’.

There is a trend for buying ever-larger assets among investors with deep pockets. 

‘I believe it is a risky trend,’ said Becken. ‘I feel more comfortable with middle-scale buildings, between €50 and €200 mln, which can have single tenant or multi-tenant usage. Bigger buildings, €200 to €300 mln, are the first to get into trouble and they could have vacancy rates of 30/40%’. 

Investing in quality rather than size is a better strategy, he said. Larger buildings are also harder to sell quickly.

‘We are a buy-and-hold investor, but even for us liquidity is a key criterion in underwriting any investment, so we think large office assets are a concern,’ said Christopher Mertlitz, Executive Director, W.P.Carey. 

‘The office sector in Germany is very solid, it has good fundamentals and there are no clouds on the horizon,’ said Assem El Alami, Head of Real Estate Finance, International Key Accounts and Syndication, Berlin Hyp. ‘But I share the view that there are limits to the liquidity of large assets. We cannot pretend that Frankfurt or Berlin are as huge a market as London or Paris’.

Contact the editor: mail

‘Action is needed to stimulate the German economy’

Assem El Alami, Head of Real Estate Finance, Berlin Hyp AG

Assem El Alami, Head of Real Estate Finance, Berlin Hyp AG

Assem El Alami, Head of Real Estate Finance, Berlin Hyp AG, tells The Real Estate Day that the Government needs to intervene on the fiscal side to avoid an acceleration of the economic slowdown and show it can control the downturn which is a concern for all lenders


Contact the editor here: mail

‘Buying real estate remains the priority’

For as long as buying real estate is investors’ main concern the sector will remain in good shape

For as long as buying real estate is investors’ main concern the sector will remain in good shape, delegates heard at Real Asset Media’s European Outlook Investment Briefing, which was held at PricewaterhouseCoopers’ Frankfurt office last week.

‘Buying real estate is the real market driver,’ said Dominique Pfrang, Senior Manager, PwC. ‘People feel there is some risk in the market and they are concerned about possible bubbles, but they are still very keen to invest in the sector’.

Frankfurt Outlook Keynote: Dominique Pfrang, Senior Manager, PwC

Pfrang used Google Trends to access data on search enquiries over the last 15 years, which show that at the end of 2019 in Europe there was a sharp increase in interest in real estate bubbles and also a spike in searches on selling property. However, these searches are dwarfed by the level of interest in buying assets, which is a signal the market is healthy.

‘Interest rates are low and there’s still a comfortable buffer between bond yields and prime office yields, so we expect transaction volumes to stabilise at high levels in 2019,’ he said. ‘The figures are looking good and our forecast for 2020 that volumes will stay there, in Germany as well as in Europe’.

The top 5 economic risk factors for real estate investors are construction costs, followed by European economic growth, the availability of suitable land or assets for acquisition or development, global economic growth and cybersecurity in fifth place.

The top 5 social risk factors, according to PwC’s Emerging Trends 2019/2020 survey, are international political instability, far ahead as a concern above European and national political instability, housing affordability and national politics.

‘It is interesting that it’s the real economy, not the financial markets that are the main concern, and in particular construction costs going up,’ said Pfrang. ‘When it comes to political concerns there is more worry about the impact of US/China relations than about the situation at home’.

The survey shows some changes in investors’ favourite sectors, with Logistics moving from second to first place in the rankings, followed by retirement or assisted living. Co-living, which was number1 last year, is now in third place, with PRS up from 7th to 4th place and Student housing up from 6th to 5th place. 

‘The overall tendency shows that investors are looking for returns,’ said Pfrang. ‘All these managed properties provide the necessary triggers to get more out of an asset and increase its value’. In general, he said, ‘investors know that you need to have good asset management to make your assets work. There is no such thing as easy money’. 

Contact the editor: mail

‘End of cycle fears are sharpening minds’

Christopher Mertlitz, Executive Director, W.P. Carey Inc

Christopher Mertlitz, Executive Director, W.P. Carey Inc

Christopher Mertlitz, Executive Director , W P Carey Inc, tells The Real Estate Day that they are seeing more deal volumes as companies want to utilize better the real estate assets they have because they feel the good economic times they have enjoyed might be coming to an end soon


Contact the editor here: mail

‘More growth to come in CEE office and logistics’

A fast-rising sector is Business Process Outsourcing (BPO) shared services centres.

The office and logistics sectors are poised for further growth in CEE, experts agreed at Real Asset Media’s CEE Investment Briefing, which was held at Colliers International’s London offices last week.

‘From an occupier perspective CEE is a very attractive proposition,’ said Stuart Beety, Senior Vice President Business Development, Skanska Commercial Development Europe. ‘The cities are outperforming in terms of growth and connectivity but also talent, with a highly educated workforce’.

A fast-rising sector is Business Process Outsourcing (BPO) shared services centres. ‘Poland is now third in the world after China and India in the BPO market, because it allows significant operational savings for large companies,’ he said.

Stuart Beety, Senior Vice President Business Development, Skanska Commercial Development Europe, Wojciech Koczara, Partner, Head of CEE Real Estate, CMS, Freddie James, Assistant Fund Manager, Tritax, Dorota Wysokińska-Kuzdra, Senior Partner, Head of Corporate Finance CEE, Colliers International and Kevin Turpin, Regional Director of Research, CEE, Colliers International discuss the opportunities available in the CEE Real Estate Investment market. Filmed at the CEE Investment Briefing, London, November 2019 by Real Asset Media.

The trend started in the regional cities and has reached Warsaw only recently. ‘It has grown tremendously quickly,’ Beety said. ‘The market for back office has just started and it will lead to more demand for offices’.

At the moment the percentage of office space per inhabitant is 1.6% in Warsaw, compared to 5% in the German cities, so there is a long way to go. ‘Supply is increasing by 20% in the Polish capital, but demand and investor appetite are growing faster’, he said. Despite the additional stock, there is still a shortage.

‘There is a huge amount of investment going into BPO shared services centres,’ said Kevin Turpin, Regional Director of Research, CEE, Colliers International. ‘They are very cost sensitive, so wage growth is a negative for BPO centres, while it is positive for retail because people have money and enjoy spending it’. 

Unemployment is at record lows and salaries have been rising in the region but from a very low base, he said: ‘Labour costs have been going up but they are still low in comparison to Western Europe. They are now 50% instead of a third, so there is still a massive gap and big savings for companies’. 

Existing and future infrastructure is another incentive for logistics investors in a region which already has geography on its side.  

‘Poland and in particular the Lodz region is in a perfect location at the crossroads of Europe between East and West, road links are great and infrastructure is improving all the time,’ said Freddie James, Assistant Fund Manager, Tritax. ‘Now it also has the Chinese rail link which allows freight to reach China in 12 days, half the time it takes to ship to the same location’. 

With a strong domestic market and good access to strong neighbouring markets and countries beyond, Poland is an obvious choice for logistics investors, he said: ‘We like the quality of the real estate, of the covenants and of the people. We are a newcomer to the region, but we hope to invest more in the future’.

Contact the editor: mail

‘The whole CEE region is attractive to investors’

Wojciech Koczara, Partner, Head of CEE Real Estate, CMS

Wojciech Koczara, Partner, Head of CEE Real Estate, CMS

Wojciech Koczara, Partner, Head of CEE Real Estate, CMS, tells The Real Estate Day that Poland still accounts for 50% of flows into the region but other countries like Czech Republic, Hungary and Romania are popular with investors and Ukraine and Slovakia also offer opportunities


Contact the editor here: mail

‘Poland has a lot to look forward to’

The Polish market is already large, developed, liquid and mature as the presence of good local asset managers shows

Poland has a lot to look forward to, delegates heard at Real Asset Media’s CEE Investment Briefing, which was held at Colliers International’s London offices last week.

The bad news is that legislation to establish a REIT regime has not been approved yet, but the good news is that the market has matured to such an extent that it is ready to hit the ground running as soon as it gets the green light.

‘Lack of domestic capital is a pity, because we cannot buy in our country in an institutional way, so to speak,’ said Dorota Wysokinska-Kuzdra, Senior Partner, Head of Corporate Finance CEE, Colliers International. ‘But on the other hand it creates an opportunity, because once we have the REIT legislation allowing pension funds to invest directly into real estate this will create even more liquidity very quickly’.

The Polish market is already large, developed, liquid and mature as the presence of good local asset managers shows, she said. Adding domestic capital ‘will make Poland even more attractive, because we know that liquidity is key for any investor in any market’.

There are some early, positive signs that the new government will be more business-friendly, experts agreed. 

Stuart Beety, Senior Vice President Business Development, Skanska Commercial Development Europe, Wojciech Koczara, Partner, Head of CEE Real Estate, CMS, Freddie James, Assistant Fund Manager, Tritax, Dorota Wysokińska-Kuzdra, Senior Partner, Head of Corporate Finance CEE, Colliers International and Kevin Turpin, Regional Director of Research, CEE, Colliers International discuss the opportunities available in the CEE Real Estate Investment market. Filmed at the CEE Investment Briefing, London, November 2019 by Real Asset Media.

‘Poland has seen tremendous growth despite an illiberal government, which four years ago passed laws restraining economic development and restricting business activity,’ said Wojciech Koczara, Partner, Head of CEE Real Estate, CMS. ‘Now we are seeing a reverse trend, new laws that are helping businesses to develop and even correcting the mistakes that were made. I hope this trend will continue’.

Looking at the number of buildings and the development of the real estate sector in ‘an unfriendly environment’, he said, it is legitimate to look at the future with renewed confidence and to expect even more growth.

‘Poland seems politically stable to us and that’s what matters,’ said Freddie James, Assistant Fund Manager, Tritax. ‘There are many international developers, so we feel we are in good company. We are confident it will remain a good market to be in’.

Contact the editor: mail

‘A positive story across most sectors’

Kevin Turpin, Regional Director of Research, CEE, Colliers International

Kevin Turpin, Regional Director of Research, CEE, Colliers International

Kevin Turpin, Regional Director of Research, CEE, Colliers International, tells The Real Estate Day that 60% of investment has gone into the office sector but retail is also strong across the region because wages are rising and people have disposable income to spend


Contact the editor here: mail

‘Investors like the CEE story’

Asian, European and domestic investment has replaced US and South African capital in CEE

Asian, European and domestic investment has replaced US and South African capital in CEE, delegates heard at Real Asset Media’s CEE Investment Briefing, which was held at Colliers International’s London offices last week.

‘Investors like the CEE story’, Kevin Turpin, Regional Director of Research, CEE, Colliers International, said in his keynote address.

By the end of Q3 investments had reached the €9 mln mark, with the pace picking up towards the second half of the year. ‘We are optimistic that we will come close to the €13 bln mark like last year,’ he said. ‘The issue is product availability rather than investor appetite’. 

CEE keynote: Kevin Turpin, Regional Director of Research, CEE, Colliers International

Poland continues to dominate the region, accounting for about 50% of total investment volumes, followed by the Czech Republic, Hungary and then Romania, Bulgaria and Slovakia. 

Offices remain a positive story, with 60% of investment going into the sector and strong interest from international investors.

Foreign capital is still pouring in, but its provenance is changing. Historically a lot of capital came from the UK, Germany, Austria and other European players and the US. 

Europeans are even more active, going up from 19% of total volumes last year to 28% this year, while Americans have been net sellers, shrinking from 19% to 6% and South African investment has halved to 7%. 

Asian capital has stepped in to replace them, shooting up from 6% to 16% this year, said Turpin: ‘We’ve seen Singaporean money, Malaysian pension money and quite a bit of South Korean capital in the last 12 to 18 months, so quite a diverse group’.

The really significant development in the last few years has been the rise in domestic CEE cross-border investment, which has increased from 23% to 25% in 2019. 

‘Most importantly, we have seen capital from Czech Republic and Hungary investing into their own markets but also in other countries in the region,’ he said. ‘Poland doesn’t have a REIT structure yet, but if things change we’ll see more money coming from there as well’. 

The macro picture looks healthy, but the slowdown in Germany is a bit of concern, said Turpin, because most of the economies in the region are closely linked to their neighbour from a manufacturing and a demand perspective. 

However, ‘CEE economies have diversified quite considerably and we believe they are quite robust now’, Turpin said. ‘We see rents pushing upwards, development pipelines are relatively strong but demand outstrips supply so our view on the region is positive’. 

Contact the editor: mail

‘Lodz is great location between East and West’

Freddie James, Assistant Fund Manager, Tritax

Freddie James, Assistant Fund Manager, Tritax

Freddie James, Assistant Fund Manager, Tritax, tells The Real Estate Day that Poland’s third-largest city has a good labour supply and great infrastructure, as it’s well connected by road and also benefits from the fast rail link to China, with goods arriving in 12 days


Contact the editor here: mail