Is Germany’s stock market vulnerable to a panic because of the situation in Ukraine? The political and economic landscape in Europe will be permanently altered as a result of Russian aggression, according to Rainer Schorr, managing director of PRS Family Trust. A higher inflation rate and weaker economic growth are likely to be experienced as the year develops. Bundesbank’s predicted 4% growth in 2022 is looking increasingly implausible, and even 2023’s expansion will be more subdued than previously thought. He went on to say that things would get even worse if Russia suddenly stopped providing energy or if the automotive industry’s supply chains had to be reorganized as a result of the strategic shift in orientation.
However, a clear sense of optimism continues to characterize Germany’s commercial occupier markets and transaction activity notwithstanding the shock and the economic concerns it is bringing. The demand exhibited in Berlin’s office market in the fourth quarter of 2017 is indicative of the generally optimistic mood. “Market demand in Berlin, which COVID-19 had caused to stall for a while, rebounded in October 2021, and has surged ever since,” as reported by Rainer Schorr. There were eight major leases of 10,000 square meters or more inked in the German capital over the final three months of last year, for a total take-up of 322,600 square meters. It increased annual consumption to 870,800 square meters. If we extrapolate this to the Berlin office leasing markets for the year 2020, we see a year-over-year growth of about 17 percent.
In the “Big 7” cities of Germany (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich, and Stuttgart), almost 3.3 million square meters of rentable space was leased out in 2021. This is an increase of 23.3% from 2019 levels. Investors in Germany still have faith in office real estate, according to Rainer Schorr, because of the high take-up rate, despite the controversy surrounding the rise of the work-from-home trend. In 2021, this asset class attracted about 30 billion euros in investment, an increase of 11% from the previous year. Adding up to 10 billion euros, investments in light industrial and logistics real estate increased by 34%, pushing retail real estate down to third place (-22%). In 2021, the sale of Deutsche Wohnen’s real estate portfolio—which included healthcare real estate—for 3.8 billion euros pushed the market for senior living and healthcare assets to a new high.
The deal contributed to a total of 62.1 billion euros in commercial real estate sales for the year of 2021, an increase of approximately 5% from the previous year and only 8% short of the record-setting year of 2019. CBRE reports that the 10-year average was exceeded by 36%. In spite of the global epidemic, Rainer Schorr claims that the German commercial real estate investment industry is on the mend. However, “short supply remains the limiting factor especially in the core and core-plus segments,” meaning that the continually strong investor demand for suitable products is not being met, and prime rents are hardening as a result of rising prices. Market participants, they reason, will eventually become less risk-averse and re-evaluate value-add or opportunistic investments.
According to Rainer Schorr, who is an expert on the German economy, foreign investors will reclaim a larger share of the market in the current year. According to Schorr, “during the past year, the German market was strongly dominated by domestic players,” leading to a decrease in foreign investments in Germany from 46% to 39%. However, German real estate continues to be quite appealing to investors from other countries. As the pandemic draws to a close, they may once again begin to win more bidding contests. In addition to urban office buildings, international investors will look to the promising risk-reward profiles of logistics and healthcare properties. And despite the dramatic change in the international scene, they will continue to concentrate on them.
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