According to a Universal-Investment survey, institutional investors are continuing to invest in real estate with sustained intensity and are increasingly targeting the Asia-Pacific region for new investments. Luxembourg vehicles are also attracting greater interest. Real estate prices are viewed as high, yet still acceptable. Demand for offices has declined, and for hotels it has fallen away completely. The winners of the new status quo are residential and logistics properties. Mainly Germany-based institutional investors with total assets of around €225.7 billion and real estate portfolios of around €40.6 billion partook in the eighth Annual Survey.
Growing interest in Asia and North America
51.4 per cent (2019: 54.0 per cent), just over half of those surveyed
cited Germany as the focus of their investments,
and 28.8 per cent (2019: 31.0 per cent) quoted other European countries
as also remaining attractive as investment locations. The Asia-Pacific
region continues to gain in significance and, with 10.9 per cent of
respondents planning future investments in this
market (2019: 9.0 per cent), it has successfully defended its lead over
its North America counterpart which came in at 8.8 per cent (2019: 4.0
Investors coming to terms with high price levels
majority of those surveyed have come to terms with the price levels in
the German and European real estate markets,
with 85.7 per cent considering prices to be high but still acceptable. A
similar view of prices prevails for non-European real estate markets,
where as many as 92.9 per cent assess the current levels to be high but
still acceptable. It is interesting to note
the year-on-year drop in the proportion of those who no longer consider
the price growth acceptable. Only 7.2 per cent now feel this way about
Germany’s real estate prices, compared with 29.4 per cent the previous
Sharp increase in demand for logistics and residential real estate
For the first time since the survey was initially conducted in 2013, residential real estate is now leading the list of planned new investments by a narrow margin. Around one in three respondents (34.1 per cent) intends to invest here (2019: 23.0 per cent). By contrast, the number of investors investing in office real estate (31.6 per cent) has fallen sharply (2019: 53.0 per cent). Logistics real estate ranked third at 17.4 per cent (2019: 8.0 per cent). Interest in retail properties remains low (8.6 per cent). As was expected, investors’ interest in hotels plummeted by almost half to 4.3 per cent compared to a year earlier (8.0 per cent).
Record demand for healthcare real estate
Alongside the general residential, office and retail property sectors, around 50 per cent of those surveyed expressed an interest in investing in newer types of healthcare real estate, closely followed by retirement homes at 42.9 per cent (2019: 17.7 per cent). This year’s rankings are topped by public buildings at 57.1 per cent. Similarly to last year, the corporate real estate segment only plays a minor role (35.7 per cent).
When asked about the affect of the pandemic, investors were particularly pessimistic about the hotel segment, where all respondents fear a downturn. In terms of other negatively impacted utilisation types, hotels are followed by retail – in particular shopping malls and high streets – at 78.6 per cent, and co-working properties, viewed especially critically by 71.4 per cent. By contrast, investors see a boost for logistics real estate (85.7 per cent), followed by residential (42.9 per cent) and healthcare (35.7 per cent).
“Housing in general and healthcare real estate in particular is almost completely independent of economic cycles. Many market players, however, are finding it difficult to make an accurate estimate of future space requirements for office real estate,” says Axel Vespermann, Managing Director of Universal-Investment and responsible for the real estate business segment. “This could well have an impact on future demand for office space, particularly for those companies who had positive experiences with working from home during the crisis,” Vespermann continued.
Yield expectations remain stable – real estate ratios expected to rise further
regard to the future course of the pandemic, the majority of those
surveyed are nevertheless confident about expected
yields. Over two thirds of the respondents (71.4 per cent) expect a net
initial yield of between 3 and 3.5 per cent from new investments in
real estate in prime locations in Germany’s top seven cities. The
remaining third of the respondents (28.9 per cent)
expect a net initial yield of under 3 per cent (2019: 40 per cent). The
expected yield on current cash flow has risen slightly and now stands
at 3.58 per cent (2019: 3.41 per cent). Institutional investors intend
to increase their real estate quotas slightly
to 15.3 per cent (2019: 15.1 per cent). “With a very realistic view,
institutional real estate investors have adjusted their yield
expectations to the market environment. The further increase in real
estate quotas reveals the lack of alternative investment
opportunities in the security-oriented segment,” explains Vespermann.
Continued focus on core+, declining interest in value-add
majority of those surveyed continue to favour core+ properties (85.71
per cent), followed by core (57.14 per cent).
Last year this preference was even clearer: without exception, all
respondents put core+ in the top position, with 70.6 per cent of those
surveyed declaring an interest in core properties in 2019. “Here, too,
there is a definite crisis effect, as people are
evidently expecting yields to fall in all risk classes. We can see this
very clearly from the declining interest in value-add properties,” says
Luxembourg vehicles closing the gap
Open-ended KAGB-based special real estate funds (KAGB is the German legal frame for investment funds) remain the most popular form of investment among German institutional investors, even though the figure has now fallen to 41.6 per cent (2019: 76.5 per cent). This contrasts with an increasing interest in almost all Luxembourg investment vehicles, with open-ended real estate special funds under Luxembourg law (25 per cent, 2019: 23.5 per cent), SCS/SCSp (33 per cent, 2019: 29.4 per cent) and RAIF (16.6 per cent, 2019: 0 per cent) growing in popularity.
Digital reports and local branches are key requirements
When asked about the key requirements for new real estate fund investments, almost three quarters of institutional investors stated that digital reporting is paramount (71.4 per cent) – a further sharp increase on the previous year (2019: 43.7 per cent). Demand for local branches in the target markets (57.1 per cent) also rose, compared with last year’s figure of just 37.5 per cent.
Source : Company