NAI apollo on EXPO REAL 2019: German real estate markets between a new cycle and political interventions
Frankfurt, 30 September 2019 – On the occasion of EXPO REAL 2019, NAI apollo forecasts above-average revenue on both the rental and investment markets despite the end of the economic boom. As such, the company anticipates a commercial transaction volume of €55 to 60 billion in Germany for 2019 as a whole. The largest share of this will be contributed by outstanding major and portfolio deals, which represent the high point of the current phase of the cycle. In the market for residential portfolio transactions, too, another above-average annual result of significantly above €15 billion is expected.
“Demand on the real estate markets remains high despite the challenging market environment. However, a possible economic downturn and deteriorating business sentiment could have a negative impact on the commercial rental markets. We can see this not least in the retail segment, which is facing severe difficulties due to the rise in e-commerce,” comments Andreas Wende, Managing Partner of NAI apollo. “The investment market is more robust, in particular as a result of the enormous excess demand which will not disappear overnight. But it remains to be seen what impact the major political uncertainties of our times will have: Brexit, the smouldering trade war or the arguments within the European Union are just a few examples of these. Although the initial position is positive, the real estate industry is currently negotiating much rougher waters.”
Political interventions exacerbate situation
A tightening of rent controls and the introduction of a rent cap for residential property as well as the introduction of rent controls for commercial real estate are currently being discussed as ways of regulating the sector. While the rent controls introduced to date have been rather ineffective, a rent cap would only address symptoms while failing to remedy the true cause of the problem – a lack of new residential buildings. The same applies for possible rent controls in the commercial segment. “It’s very easy to talk about regulating real estate markets. But one thing is certain – regulations inhibit investments and cause concern among investors,” says Wende. “These policies are therefore preventing the construction of new buildings at a time when we are dependent on precisely this kind of economic commitment. The fact that new buildings are to be excluded from the rent cap does not provide any relief here either. If the political interventions become too great, investors will simply concentrate on other areas instead.”
Stabilisation expected for 2020
A sideways movement appears most likely in the commercial rental and investment markets, before a possible slowdown and decline of market activities due to cost-cutting. As such, NAI apollo forecasts a transaction volume of around €50 billion for the commercial investment market in 2020. Trends towards stabilisation are also discernible in prime yields. In the office lettings market in particular, NAI apollo anticipates a further increase in rental prices due to the lack of space. “The quite optimistic forecast for the coming year comes with a significant caveat: attempts at regulation and negative economic development on the one hand and international political risks on the other have the potential to impact the situation considerably,” explains Dr Konrad Kanzler, Head of Research at NAI apollo.