Residential portfolio market achieves second-best result in 2019 after 2015
Frankfurt am Main, January 2020 – The investment market for residential portfolios in Germany achieved its second-highest annual result in 2019 after the record year of 2015, according to the latest report from owner-managed real estate consultancy NAI apollo. Owing to the much higher transaction volume in the second half of the year (€11.1bn compared to €8.1bn in the first six months), the total traded volume generated by the completion of 390 deals in 2019 amounted to €19.2bn. This was €0.6bn above the very good result for the previous year. The transaction volume in the past three months again exceeded the €5bn mark with €5.3bn, representing the second-strongest quarter of 2019.
“Large-scale portfolio sales and company share purchases in the three-digit million range again played a significant role last year. The market engagement by the public sector was particularly noticeable, with an increasingly strong presence on the buyer side,” said Andreas Wende, Managing Director of NAI apollo.
Dr Konrad Kanzler, Head of Market Research at the NAI apollo group, added: “The number of traded units did fall slightly to just over 123,000 compared to the previous year. However, the average price per unit increased by 14.5 % to about €155,700 as a result of active demand for new developments and high-quality stock, and this is reflected in the overall volume.”
Large portfolio deals and takeovers boost the market volume
As in the previous year, the transaction volume was dominated by various mega deals with prices of more than €500m apiece. Two company takeovers represented the two largest deals. In the second quarter, property funds of a buyer consortium comprising Union Investment and ZBI Zentral Boden Immobilien acquired BGP Group with around 16,000 units. Then in September, Ado Properties sold subsidiary companies with around 6,000 units in Berlin for €920m to the municipal housing company Gewobag. The ZBI Group made a further large acquisition in the third quarter, paying around €615m to Deutsche Wohnen in an asset deal for 6,350 units. In the first quarter, Deutsche Wohnen also acquired the Akelius portfolio with around 2,800 units for €685m. Also worth noting is the acquisition by Commerz Real of more than 1,000 units for its open property fund as part of the Millennium portfolio from Generali Versicherung in the third quarter of the year.
Sales in excess of €500m therefore generated a total transaction volume of about €4.7bn, which was slightly below the previous year’s figure of €5bn. “The “€100m-€500m” segment made some gains, accounting for a combined €6.4bn. Thus the market share of sales above €100m increased from 52.8 % in 2018 to 58.3 %,” said Stefan Mergen, Managing Partner of NAI apollo valuation & research GmbH. The remaining categories including deals below €100m accounted for between 3.4 % and 15.6 % of the market (in total for 2019: €8bn/2018: €8.7bn).
Project developments become increasingly important
There was a further increase in the number of forward deals on the market last year. While sales in project developments reached €4.2bn in 2017, they generated €5.1bn in 2018 and then almost €5.8bn in 2019. “The market share of such deals increased in parallel, rising from 27.5 % of the investment volume in the previous year to around 30 % in 2019. Standout deals include the sale of the Kleyerquartier development with 1,200 units in Frankfurt Gallus and the sale of part of the BCP project, which plans to build 1,500 units in the Glasmacherviertel (glassmakers’ district) of Düsseldorf,” said Kanzler.
Public sector and asset/fund managers are particularly active
The most active group of buyers in 2019 comprised “open property funds and special funds” with a purchase volume of €6.7bn. In second place are “asset managers and fund managers”, which generated a record-breaking purchase volume of about €3.4bn (2018: about €1bn). The public sector was in third position, with just below €3.1bn. This group increased its investments by around €1.9bn compared to the previous year. “The market share of federal states and municipalities has been increasing since the beginning of last year and now exceeds 15 %. The public sector is snapping up housing and stepping up buying activity in urban areas,” said Kanzler. Purchases worth noting include those by Gewobag, Degewo, Nassauische Heimstätte, Bremen city state and the state of Thuringia.
“Project developers and contractors” strengthened their leading position on the sell-side with a volume of around €6.6bn (2018: €5.9bn). They were followed by “asset managers and fund managers” in second place with a sales volume of €3.8bn.
Domestic investors dominate the market
While the investment volume of foreign players has been in decline since 2017, in 2019 German investors accounted for the highest market share since records began. In absolute terms, local players generated a purchase volume of about €17.1bn compared to €15.1bn in 2018. This corresponds to a market share of almost 90 %. International investors accounted for an investment volume of around €2.1bn (2018: €3.5bn). “On one hand, this is owing to the fact that domestic investors tend to win the bidding more frequently. At the same time, a growing reluctance among international investors is having an impact on their market activity. They are deterred by a lack of knowledge about possible consequences and the need to deal with new regulations for individual housing markets,” said Mergen.
In terms of the different locations, North Rhine Westphalia was ranked in first place with an 18.7 % share (by number of transactions), followed by Hesse with 15 % of the deals registered in 2019. At city level, the emphasis was again placed on the Big 7 - in particular Berlin, despite the ongoing debate about housing regulations. “However, purchases by the public sector also contributed to this strong performance, while other groups of buyers in some instances prefer to wait and see what happens,” said Kanzler.
NAI apollo expects market activity to remain at a high level in 2020
Despite the possibility of further statutory controls, conditions still look positive for the coming months with low interest rates, a lack of alternative investment options and a stable rental housing market. Demand for suitable investments remains at a high level. “This year, large-scale forward deals will again take place alongside traditional asset deals. Furthermore, the merger of Adler Real Estate and Ado Properties, announced at the end of the year, is already heralding a new mega-deal,” said Mergen. Against this background, NAI apollo expects the 2020 result to be close to the investment volume for 2019. However, a new record volume is unlikely to be achieved this year.