NAI apollo: Transaction market for residential portfolios makes positive start to 2019 despite a decline in volume
Akelius portfolio is sole purchase above €500 million
The acquisition of the Akelius portfolio by Deutsche Wohnen with 2,839 units was primarily responsible for the good result at the start of the year, along with a number of transactions priced between €100 million and €500 million with a total volume of about €1.6 billion. “The mega deal with a purchase price of around €685 million was the sole transaction in the price segment above €500 million. The two size categories accounted for a combined €2.3 billion, which was well above half the overall market volume at 58.8 %,” said Dr Konrad Kanzler, Head of Market Research at the NAI apollo group. The categories below €100 million accounted for shares of between 4.6 % and 16.2 %, with a combined absolute volume of about €1.6 billion.
General price increase and project sales drive up the average price
The now familiar upward trend in purchase prices for both second-hand properties and properties sold via forward deals has continued into 2019. Above all, the large number of new residential units that were sold during or before the construction phase, and which account for a market share of about 30 % and a volume of €1.2 billion, is reflected in the general price trend and contributed to the stable development of the transaction volume. Thus the average purchase price per unit has risen to about €157,000. This corresponds to an increase of almost €14,000 per unit compared to the first three months of 2018.
Major purchases by the investor group ‘public administration/municipalities’
Public administrations and/or municipalities were particularly active on the market in the first three months of the year. These investors increased their purchase volume from €207 million in the first quarter of 2018 to around €890 million in the past three months. As a result, they have now become the second-strongest investor group with a market share of 23.0 %. The German state of Bremen is worth highlighting here as it acquired the 50 % stake held by Sparkasse Bremen in the Brebau housing association (with a total of around 6,000 units). Other notable deals include the purchase by the federal state Berlin of more than 1,800 units from Schönefeld Wohnen GmbH & Co. KG in Berlin-Altglienicke.
“This clearly shows what is expected from the municipalities: socio-political engagement, particularly with regard to securing the supply of housing that is below market rates,” said Stefan Mergen, Managing Partner of NAI apollo valuation & research GmbH.
However, “listed property companies and REITs” remained the most active investor group, primarily because of the acquisition of the Akelius portolio by Deutsche Wohnen. This group accounted for an investment volume of €990 million and a share of 25.7 %. However, the volume dropped by 67 % compared to the previous year because of the absence of deals that were similar in size to the BUWOG acquisition last year.
Project developers and contractors are most strongly represented on the sellers’ side with a 44.2 % share, which ties in with the increased market significance of forward deals. The absolute transaction volume amounted to €1.7 billion, which is 19.6 % higher than the previous year’s figure. Property companies were next in line with a 36.4 % share and a volume of about €1.4 billion.
German investors slightly increase their market share; international players see a decline
Compared to the previous year, German investors marginally increased their share of the purchase volume from 83.5 % to 84.8 %. However, the corresponding transaction volume fell from around €5.7 billion to about €3.3 billion. International investors registered an absolute decline of €1.1 billion to €590 million, reducing their market share by 1.3 percentage points to 15.2 %.
In terms of location, as in previous years the most dominant states in terms of number of transactions were North Rhine Westphalia with a 15.7 % share and Berlin with 13.5 %. “German cities such as Düsseldorf, Cologne, Berlin and Frankfurt remained the market hotspots. Owing to the shortage of supply, however, investors continue to show interest in properties situated in secondary and tertiary locations,” said Kanzler. Cities in Hesse, Rhineland Palatinate and Saxony (mainly Dresden and Leipzig) were well represented among the secondary investment locations in the first quarter of 2019, as were cities in and around the Ruhr region (including Solingen, Herne, Essen, Bochum). In addition, a major deal took place in Bremen with the acquisition of Brebau.
Positive outlook based on expected major deals
The outlook for 2019 remains promising, not least because the sale of the BGP group to the ZBI group and Union Investment was completed at the start of the second quarter. “Here, about 16,000 residential and commercial units changed hands in locations including Berlin, Cologne, Düsseldorf and Münster as well as Kiel. In addition, high-priced sales of project developments as well as large portfolio deals with prices above €100 million will again strengthen market activity,” said Mergen. With that in mind, NAI apollo expects that the transaction volume will again exceed €15 billion by the end of the year.