NAI apollo: Residential portfolio market in Germany makes best start to a year since the record period of 2015

• Purchase of BUWOG by Vonovia responsible for best start to a year since 2015 record period
• More large deals registered compared to previous years
• Listed property companies retain their position as the strongest buyer group
• Forward deals gain in significance
• Prices for existing buildings and project developments increase further
• Outlook for 2018: The transaction volume is expected to be at least in line with the previous year’s level based on high-priced project sales and small and medium-sized portfolio sales

Frankfurt am Main, 05.04.2018 – According to the latest analysis by owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group – the residential portfolio investment market in Germany has maintained the strong momentum that was already evident at the end of 2017. In the first quarter of 2018, the transaction volume increased by as much as 86.6 % to about €6.9 billion compared to the same period of the previous year (2017: €3.7 billion). This therefore marks the best start to a year since the record result in 2015. A total of 47,900 residential units changed hands (Q1 2017: 27,700).

The acquisition of BUWOG by Vonovia was the primary reason for this excellent result. “The German part of the German-Austrian portfolio comprised 27,000 units and contributed an estimated €2.9 billion to the overall volume. That represents 42.0 % of the transaction volume in the first three months,” said Dr. Konrad Kanzler, Head of Market Research at the NAI apollo group.

Price rises and higher number of forward deals boost average price

The sharp increase in the purchase price of existing properties and project developments — a trend that has become increasingly evident over the last two years — will continue during 2018. In addition, high-priced project development sales have risen strongly by 72.7 % to €1.9 billion compared to the first quarter of 2017 (€1.1 billion). One noticeable development is the large number of micro-apartment complexes and student residences that were sold before or shortly after completion. Overall, this led to an increase in the average purchase price of traded residential units by 7.9 % or around €10,500 to €143,400 per residential unit compared to the first three months of 2017.

Portfolios above €100 million dominate the market scene

As a result of the BUWOG acquisition for around €2.9 billion (German part) and the purchase of an apartment portfolio for the Bayerische Versorgungskammer (BVK) with a volume of €670 million, deals in the “€500m-plus” category accounted for the bulk of the transaction volume with a 52.3 % share in the first quarter of 2018. “In the first three months of 2017, only one transaction amounting to €655 million took place in this size segment, while there were none at all in the first three months of 2016,” said Stefan Mergen, Managing Partner of NAI apollo valuation & research GmbH. The “€100m-€500m” segment was in second place with a 23.7 % share and a transaction volume of about €1.6 billion. The categories “below €100m” accounted for between 2.9 % and 7.8 % of the volume and generated a total transaction volume of about €1.6 billion. This corresponds to a decline of 28.4 % compared to the same quarter of the previous year (Q1 2017: €2.3 billion). This means that large portfolios in excess of €100 million have tended to dominate the market at the beginning of the year. Compared to the previous year, such deals increased their market share from 38.6 % to 76.0 %, or in absolute terms from €1.4 billion to €5.2 billion.

Sharp increase in purchase volume for insurances and pension funds

In terms of the different types of investors, "insurances and pension funds" have been particularly active this year. “Including BVK’s purchase of the apartment portfolio, this group of investors has increased its transaction volume almost nine-fold compared to the beginning of 2017,” said Stefan Mergen. This corresponds to an invested capital of just under €900 million or a 13.0 % share. However, “listed property companies and REITs” remained at the top of the ranking. After regaining pole position from the "open-ended funds and special funds” last year, these market players have held their ground in the first quarter of 2018 — mainly owing to Vonovia’s acquisition of BUWOG. “Listed property companies and REITs" now account for an investment volume of €3.0 billion, or 44.2 %. "Open-ended funds and special funds" are ranked in second place with a share of 15.1 %, and increased their sales volume from €600 million in the first three months of 2017 to €1.0 billion this year. “Insurances and pension funds” were next in line, as mentioned above.

“Listed property companies and REITs” are also the most active sellers with a 56.7 % share of the sales volume. This corresponds to an absolute sales volume of €3.9 billion. “Without the BUWOG acquisition, they are just as strong in the current quarter as they were in the previous year with around €1.0 billion,” said Dr. Konrad Kanzler. “Project developers” were ranked second with a share of 20.7 % and a sales volume of €1.4 billion.

German investors expand their market share, but international players gain in absolute terms

German buyers increased their share to 83.5 % (Q1 2017: 81.9 %), mainly owing to the BUWOG takeover. This equates to an increase in the transaction volume from €2.7 billion to €5.7 billion. In absolute terms, international investors also invested over €400 million more than in the same period of the previous year, thus achieving a purchase volume of €1.1 billion.

As in previous years, most transactions (by number) took place in Berlin (19.1 % share) and North Rhine-Westphalia (13.6 %). "The focus is still on the German metropolitan centres. However, due to the short supply, investments in secondary and tertiary locations also remain a priority for investors,” said Dr. Konrad Kanzler. Cities in Saxony (including Dresden and Leipzig) are again well represented as investment locations in the first quarter of 2018, as are cities in and around the Ruhr area. A major transaction again took place in this area during the first quarter with 2,000 residential units mostly located in Dortmund and Bochum.

“The outlook for 2018 remains positive. Although no further corporate takeovers are currently on the horizon, high-priced project development sales as well as medium-sized and small portfolio deals will have an even stronger influence on the market,” said Stefan Mergen. Based on the successful start to the year, NAI apollo expects the 2017 annual result of €15.7 billion — which also represents the second-highest result in the last ten years — to be reached again or even to be slightly exceeded in the year as a whole.