The buzzword at the moment is value retention
The probability of further and tougher lockdowns now seems more than likely. In the meantime we are experiencing the third wave of the coronavirus – how many more will follow? Rarely have hope and uncertainty accompanied one another as closely as at the present time.
In political terms we are also seeing some remarkable constellations. Only about one third of the German population is satisfied with the work of the federal government. At the same time, a total of more than 70 per cent of the respondents in the ‘Deutschlandtrend’ opinion poll from 1 April 2021 conducted by the public broadcaster ARD believe that the measures to tackle the coronavirus are either too lame or suitable. It is scarcely possible to see a greater discrepancy in public opinion.
Astonishingly, this discrepancy can also be observed on the real estate markets: on the one hand, the interest of investors in German core properties remains high – with the effect that returns of 2.0 to 2.5 per cent after the deduction of all costs reflect the reality for the coming years. Thanks to this demand, a transaction volume of as much as 50 billion euros for commercial real estate in 2021 seems absolutely realistic. On the other hand, there are more imponderables than ever before: banks are being much more restrictive than they were before the crisis, due diligence processes are being conducted much more thoroughly, and also with a view to the growth in ESG criteria – and the transaction market is slowing up.
The pandemic in combination with the trend towards new working worlds and coupled with changes in business models and supply chains has led to a shift in demand for space. Although the extent cannot yet be defined, it is nevertheless likely that numerous companies will probably downsize and decentralise – and not increase in size.
For investors this means that they will have to dispense with the pursuit of growth that has marked the recent past. The coming years will be not characterised either by increases in rents or by a rise in market values. Instead it is now all the more important to safeguard stability. Active tenant management is more important than ever before so as to analyse and eliminate possible risks, and also to secure value retention. Likewise, opportunities should be identified as to how as yet untapped potential for value can be exploited – for example through the redevelopment of existing properties.
The role that will be played by asset and property management in this respect is explained by my fellow managing director Michael Stüber in the latest version of our newsletter. In particular I am pleased that we have been able to conduct an interview with the internationally renowned real estate expert Timothy Horrocks. In the interview he explains where he currently sees opportunities, risks and challenges on the German real estate markets.
I wish you pleasant reading.
About: Markus Reinert FRICS is the Chairman of the Board and CEO of IC Immobilien Holding GmbH.