German Real Estate News 24-2014 - German Press Review - Comments - Facts & Figures about German and European Property Markets (Weeks 46/47)
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German Real Estate News 24-2014
German Press Review – Comments – Facts & Figures about
German and European Property Markets (Weeks 46/47)
)
Volume IX, Issue 24, Date of Publication: 25 November 2014
Real Estate News added that this goes to show how government
interventions on the market are simply not
called for. All the more so because rent rates
Rise in Residential Rates Largely continue to undercut the level of 20 years ago
Checked when adjusted for inflation. “The years of
steep rent hikes are over, making a rent
Rental growth has slowed in 2014, as the freeze superfluous,” commended Schick.
FRANKFURTER ALLGEMEINE ZEITUNG, In cities with more than 500,000 residents,
the BÖRSEN ZEITUNG, DIE WELT and the rents on new leases for flats with medium
HANDELSBLATT wrote on 14 November, amenity and raised after 1949 were said to be
and WIRTSCHAFTSWOCHE ONLINE, 7.96 euros / sqm or 3.1% above the prior-year
SPIEGEL ONLINE, STERN ONLINE and figure. Rent rates rose by 4.6% during this
FOCUS ONLINE on 13 November. It was said period. “We are seeing barely any rent per-
to be the upshot of the IVD Residential Price formance above the inflation rate,” said
Monitor 2014/2015. Compared to previous Schick. There are ten cities with populations of
years, rents on new leases showed slowed 200,000 to 500,000 in Germany that regis-
growth across all amenity and building age tered no year-on-year increase in rents on
categories, and across city sizes, too. On av- new leases at all.
erage, people paid 5.78 euros / sqm net rent New apartments are showing the same trend.
for apartments in Germany built after 1949. Rental growth for newly completed apartments
This implies an increase by 2.1% since 2013. with medium amenity in cities of more than
Even in cities like Düsseldorf, Frankfurt am 500,000 residents was said to have slowed
Main, and Dresden, as well as in Bonn and from 5.9% last year to 4.8% this year. The
Wiesbaden, rents flatlined last year. “As there German average for a new flat of good ameni-
is no evidence for rental uplift, a key criterion ty is currently 8.11 euros / sqm – a rent in-
for the introduction of a rent freeze is just not crease by 2.9% since 2013. This means that
being met,” said Jürgen Michael Schick of the here, too, the rental growth slowed by one
IVD Federal Investment and Asset Manage- percentage point year on year.
ment Association. “Even in Munich, the rent At the same time, the share of the net house-
freeze would be irrelevant given the clearly hold income that tenants spend on rent plus
sub-average rental uplift of 0.84%.” Schick heating has slightly declined over the past 20German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
years. While tenants paid an average of 19% the inflation rate over the past 20 years. If you
of the net household income for their flats in take 1994 as reference year, the inflation in-
1994, the share has been around 15-16% dex score would be 134.6 today. The rent
since the year 2000. growth index for Germany, by contrast, would
The FRANKFURTER ALLGEMEINE ZEI- have risen by only 106 during the same peri-
TUNG also reported that the planned rent od. Even in the top ten cities, the IVD Resi-
freeze is unconstitutional according to a legal dential Price Monitor shows an index score of
opinion. “Members of Parliament should now only 117.6 today. It was perfectly plausible for
pull the emergency brake and refuse to pass rents to experience an accelerated growth cy-
this piece of legislation,” said Rolf Kornemann cle at some point.
of the Haus & Grund property owners' associ- The prior years of stagnating rents or indeed
ation. Kornemann was said to have an- rental decline seem to have escaped public
nounced that his association will lodge a con- awareness. There was quite a commotion,
stitutional complaint if the bill is passed as though, when rent rates did start going up
planned next spring. again, and did so at a good clip. It has now led
to the introduction of the so-called rent freeze
at a time where rental growth is slowing or
Absurd: a Rent Freeze to Combat flatlining already. An absurd situation! But I'm
Stagnating Rents under no illusion: Ideologically deluded politi-
cians among the Social Democrats, Greens,
by Dr. Rainer Zitelmann and Left Party will never get sidetracked by
facts and figures. Whenever reality is at odds
Even I was caught off guard by the latest fig- with their ideology, they shrug it off, saying:
ures: Rents on new leases have increased by That's just too bad for reality!
a mere 0.84% year on year in Munich, by 0% Last week, I talked to several Christian Demo-
in Frankfurt am Main, by 0% in Düsseldorf, by crats. They had not liked the idea of having to
0% in Dresden, by 0% in Bonn, and by 0% in vote for the rent freeze to begin with. In the
Wiesbaden. I'll bet you, though, that policy- time since the coalition agreement was signed
maker will want to introduce the rent freeze in with the Social Democrats, many Christian
these very cities anyway. Democrats have come to consider it implausi-
Naturally, there are also cities where rents ble to pass rent control legislation before the
kept pushing up, especially Berlin with a year- key term of such a bill has been properly de-
on-year rental growth of 5.67%. That said, the fined.
growth rate in Berlin is unsurprising insofar as The coalition agreement states that the repre-
rents here started on a particularly low level. sentative list of rents should be put on a
They rose from 7.05 to 7.45 euros, compared broader basis. This would necessitate a law
to an increase from 11.90 to 12.00 euros in governing the compilation of such a list of
Munich. rents. For so far, the process has been noth-
But the broad-based rental growth trend has ing less than chaotic: Each city employs a dif-
been checked. ferent method to compile its representative list
We are looking at a phase where pent-up de- of rents. In fact, the methods are often so
mand is being met, because rent rates in ramshackle that any first-year student of sta-
Germany have risen noticeably slower than tistics would be able to identify their flaws.German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
Yet policymakers have reversed the logical fails to re-regulate rent increases in the wake
sequence: Instead of passing legislation that of modernisation works. According to the pa-
clearly defines the methods for determining per, the German states have asked the Fed-
the representative list of rents, they started by eral Government to submit proposals in this
building a law around a term that has yet to be context as soon as possible. They also criti-
defined – the “local reference rent.” Unsurpris- cised the planned regulation for repaying ex-
ingly, the explanatory memorandum to the bill cess rent paid on apartments that are subject
actually concedes that there is reason to ex- to rent control. The plans, so the argument,
pect a high number of law suites because of make it harder for tenants to enforce their
this lack of clarity. rights and create incentives for landlords to
Unperturbed, the Social Democrats are al- miscalculate the rents at the time of the lease
ready scheming: They intend to pass another signing. Accordingly, landlords are supposed
law back-to-back with the rent control bill to be obligated from the start of a tenancy to
which would stipulate that the compilation of repay inflated rent payments. The Upper
representative lists of rents be based on the House sees reportedly no need for the draft
past ten (!) rather than the past four years. If bill to define the criteria that qualify areas as
this came to pass, it would spell certain doom having strained housing markets. It felt that
for residential property owners, and would cer- the bill would only have to say that such
tainly lay the axe to any future investment in strained areas exist whenever an adequate
this segment. For it would legally prescribe rental housing supply for the respective popu-
rent cuts. Conversely, it would be a dream lation is at hazard. The rest should be left to
come true for the lobbyists of the DMB Ger- the respective state government.
man Tenant Union and socialists across all
parties.
We should do everything we can to prevent CBRE: Hotel Investments in Germa-
this. I hope that those Christian Democrats will ny more Sought than Ever
carry the day who insist on a proper regulation
of the representative list of rents in a first step As the BÖRSEN ZEITUNG reported on 13
before rent control legislation is passed in the November, investments in German hotel
next. property are highly popular among domestic
and foreign investors both. “The share that
hotel investments had in the total commercial
Germany's Upper House Calls for real estate market rose to 7.7% by the end of
Rectification of Defective “Rent the first three quarters of 2014. The figure
compares to a long-term average between 5%
Freeze” Bill
and 6%. This goes to show how volatile the
As the IMMOBILIEN ZEITUNG wrote on 13 market is,” said Olivia Kaussen of CBRE. She
November, the German Upper House (“Bun- added that the number of players on the Ger-
desrat”), while principally approving the draft man market has increased, and now includes
bill for the rent control law nicknamed “rent pension funds for the medical profession,
freeze,” has requested a number of correc- pension scheme and high-net-worth individu-
tions. The German states represented in the als. The portfolio transactions dominated by
Bundesrat regretted to note that the draft bill foreign players include the sale of the Moor-German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
Park portfolio to Accor for more than 700 mil- Residential and Commercial Proper-
lion euros, along with the sale of the European ty Getting Pricier
portfolio of Holiday Inn Express and Crowne
Plaza Hotels to Apollo Real Estate for approx- A survey published by the Association of
imately 425 million euros. In either case, the German Mortgage Credit Banks (VDP) sug-
Germany share exceeded 50%. Jan-Hendrik gests that prices for residential and commer-
Jessen of Patrizia considers budget hotels an cial real estate rose by 4.8% year on year dur-
interesting proposition for investors. “Relevant ing Q3 2014. This was reported by the HAN-
for us are cities with populations of 100,000 or DELSBLATT on 18 November and by the
more, provided they also show robust eco- FRANKFURTER ALLGEMEINE ZEITUNG on
nomic performance and a positive trend in 21 November. The papers wrote that the price
overnight stays,” said Jessen. He added that index for residential real estate went up by
Patrizia aims for a gearing ratio of 50% and 5.2% for residential and by 3.7% for commer-
net initial yields between 6.0% and 6.5%. cial real estate. The hefty price hike for resi-
dential real estate is attributable to the in-
creased demand for multi-family residential
Number of Planning Permissions on buildings, whose prices gained by 7.2%.
the Rise Nationwide According to a survey by the DIW German
Institute for Economic Research, one third of
The FRANKFURTER ALLGEMEINE the 127 German cities studied manifest signs
ZEITUNG (19 November), and the of exaggerated price growth for existing and
SÜDDEUTSCHE ZEITUNG (21 November) new apartments. This was reported by DIE
reported that around 212,600 new apartments WELT on 20 November. The paper went on to
were licensed across Germany up to and in- say that speculative price bubbles are most
cluding Q3 2014, a year-on-year increase by likely in Munich, Cologne, and Hamburg as
5.2%. This is the upshot of a survey compiled well as in popular campus towns. The threat
by the Federal Statistical Office (Destatis). appears to be limited to new completions and
This means that the growth rate for construc- local core areas, though. The hottest danger
tion works has slowed: In Q1 2014 the growth spots are in southern Germany, specifically
rate still stood at 15.3%, the paper added. At Bavaria. Then again, skyrocketing prices were
the same time, real estate interest groups crit- also reported from several cities in North
icised that the looming rent freeze increasingly Rhine-Westphalia (Cologne, Neuss, Bonn)
discourages investments. “Now as then, hous- and from Hamburg. The paper blamed the
ing construction represents the only effective price hikes on the increased inflow from inside
way to combat rising rent rates,” emphasized and outside Germany, as well as on the grow-
Jürgen Michael Schick of the IVD Federal In- ing interest among foreign investors and finally
vestment and Asset Management Association. on the low level of interest rates. Practice
Practice seminar: The Best Condo-Selling seminar: The Best Condo-Selling Strate-
Strategies (Old and New Buildings): On 04 gies (Old and New Buildings): On 04 De-
December 2014, the BERLINER IMMO- cember 2014, the BERLINER IMMO-
BILIENRUNDE panel will host a special event BILIENRUNDE panel will host a special event
on the subject. Request your copy of the pro- on the subject. Request your copy of the pro-
gram e-mailing us at: info@immobilienrunde.de.) gram e-mailing us at: info@immobilienrunde.de.)German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
Dr. ZitelmannPB. Real Estate Stock perts anticipate stagnating prices, while the
Barometer – Q3 2014 remaining ones expect price gains.
Sentiment is just as glum in regard to residen-
Pessimistic Sentiment among Ana-
tial real estate stock: The analysts' short-term
lysts Persists outlook for residential real estate stock has
darkened lately. The Barometer score slipped
Real estate stocks analysts remain pessimis-
from zero to -0.1. Two analysts expect prices
tic. A clear majority of the polled experts ex-
to stagnate, while another three analysts as-
pect prices to flatline. This is the upshot of the
sume they will fall, and only one expert pro-
latest Dr. ZitelmannPB. Real Estate Stock Ba-
jects a slight price growth. The Barometer
rometer. For the short-term outlook, the score
score for the one-year outlook remained un-
of the sentiment indicator remained level at
changed at +0.3. Three analysts predict slight-
+0.1 points.
ly upward price growth, another three expect
While the twelve-month outlook for real estate
prices to stagnate, and one analysts expects a
stocks are brighter, the score remains on the
slight negative growth.
low level of +0.4 already returned by the Q2
survey. This means that sentiment has notice-
ably deteriorated year on year, having
Housing Construction Gathering
dropped from +0.6. Four out of seven analysts
polled think that the prices of German real es-
Steam in Berlin
tate stocks will perk up slightly over the next
As the IMMOBILIEN ZEITUNG reported on 20
twelve months. Two analysts predict stagnat-
November, the number of planning permis-
ing prices, while one expert actually assumes
sions issued in Berlin has grown by around
that prices will soften.
75% year on year. The paper quoted the Ber-
lin-Brandenburg Statistics Office, adding that
Anticipated Real estate Real estate Real estate
share price stock in stock stock resi-
multi-family residential construction had seen
performance general commercial dential the most dynamic development, as the plan-
over next 3 ning permission granted here more than dou-
+0.1 0.0 -0.1
months bled compared to the same period last year.
over next One in every four schemes is reportedly
+0.4 +0.6 +0.3
12 months
raised in the Borough of Mitte. The total
amount that property developers were said to
Commercial real estate stock continues to be have earmarked for investments in new hous-
eyed with pessimism. The indicator score for ing is 2.9 billion euros – a fifth more than a
the coming three months has dropped to zero, year ago. Practice seminar: The Best Con-
down from +0.3 in Q2. Just one analyst thinks do-Selling Strategies (Old and New Build-
that prices will surge. Four experts assume ings): On 04 December 2014, the BERLINER
that prices will stagnate, and one analyst con- IMMOBILIENRUNDE panel will host a special
siders it most likely that prices will drop slight- event on the subject. Request your copy of the
ly. The Barometer level has also dropped for program e-mailing us at: in-
the medium-term outlook, but remains rela-
fo@immobilienrunde.de.)
tively high with a score of +0.6. Only three exGerman Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
High Potential: Student Housing in down the road of the European welfare state.
Southern Germany The differences between Europe and the
United States, but also the differences inside
Europe, became readily apparent in the find-
DIE WELT discussed a CBRE market report ings of a poll conducted in April 2011.
in its 19 November issue, which suggests that GlobeScan, an international public opinion
investments in student accommodation are research consultancy, polled the attitude to-
most profitable in the south of Germany. ward a market economy system both in the
CBRE analysed a total of 61 campus towns United States and in Europe, submitting the
with a student population of more than 8,000 following statement to the interviewees:
in terms of attractiveness for investments in “The free market system and free market
student halls of residence and student apart- economy is the best system on which to base
ments. Five of the ten campus towns with the the future of the world.” The percentage to
highest potential are located either in Bavaria which respondents in the subsequently listed
or Baden-Württemberg, Munich taking the countries agreed completely with the state-
lead and the other cities being Stuttgart (5), ment differed considerably (pp. 266-67):
Freiburg (7), Tübingen (9) and Erlangen (10). United Kingdom 19%
Hamburg, Cologne, and Frankfurt scored the Spain 24%
places two through four, respectively. While Italy 21%
North Rhine-Westphalia is the state with the France 6%
highest number of campus towns, only two Germany 30%
made it into the top twenty aside from Cologne If you add the figures for the answers “agreed”
and Münster (8), these being Düsseldorf (11) and “somewhat agreed,” the results are more
and Bonn (18). In East Germany, CBRE de- positive, with 68% in Germany, 55% in the
tected high investment potential only in a few UK, and 52% in Spain. In France, by contrast
locations, one of them being Berlin (6). 57% of the respondents rejected the notion
out of hand.
It is interesting to see the difference in opinion
Recommended Reading – by Dr. in the United States: Here, 59% of the re-
Rainer Zitelmann spondents agreed with the positive statement
on a free market economy, meaning twice as
Warning Call against the Europeani- many as in Germany and nearly ten times as
zation of the United States many as in France.
According to the author, the contrast graph-
Samuel Gregg, Becoming Europe. Economic ically exemplifies the differences in “economic
Decline, Culture, and How America Can Avoid culture” in Europe, on the one hand, and the
a European Future, Encounter Books, New United States, on the other. But having made
York / London, 2013, 363 pages his point, he adds a caveat: Fuelled by the
financial crisis, the attitude in the United
This is one of the best books I have read in States is shifting toward the European one.
recent years. It is a critical account about the The seemingly impressive 59-percent consent
present state of Europe, and is meant to serve among Americans actually marks a decline
as a warning to Americans not to keep going from the 80 percent who still felt that wayGerman Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014 when asked the same question in 2002, just rity over economic liberty; in which the state eight years earlier. Among low-income Ameri- annually consumes close to 50 percent of cans (meaning annual incomes of 20,000 dol- gross domestic product; where the ultimate lars or less), the approval rate declined from economic resource (i.e. human beings) as 79 percent in 2009 to 45 percent in 2010. ageing and declining in numbers; where the Polls conducted in the United States confirm extensive regulation is the norm; and perhaps that the intellectual elites in academia, in the above all, where economic incentives lie not in media, and in the legal professions have a far hard work, economic creativity, and a willing- less favourable view of the market economy ness to take risks, but rather in access to polit- than Americans collectively speaking. Equally ical power? disturbing is that young Americans are more Or do Americans want to embrace the oppo- ready to distance themselves from the market site? Do they want to live in an economy in system than older ones (p. 11). For the time which economic entrepreneurship is reward- being, however, the market economy values ed; where the government’s economic re- and the belief in the merits of competition, sponsibilities are confined to a number of im- freedom of contract, and ownership remain portant but limited functions; and where the much more deeply embedded in American stress is upon economic liberty, rather than minds than in the minds of Europeans where remorseless efforts to equalize economic out- the idea of “social justice” dominates the polit- comes though state action?” (pp. xviii-xix). ical discourse. Only if you are familiar with Americans' justi- Vaclav Klaus, the former President of the fied fear of becoming Europeanised will you Czech Republic, summed up the situation in comprehend the hard ongoing debates in the Europe like this: “It seems that Europeans are United States. German media tend to portray not interested in capitalism and free markets Republicans and specifically the so-called Tea and do not understand that their current be- Party faction as fanatics upholding absurd po- havior undermines the very institutions that litical tenets and rejecting the health care re- made their past success possible. They are form of President Obama for unfathomable eager to defend their non-economic freedoms reasons. Reading this book will make you ap- – the easiness, looseness, laxity and permis- preciate the resistance against “Obamacare” siveness of modern or post-modern society – because it is about much more than socialised but when it comes to their economic free- medicine: This is about a cultural struggle doms, they are quite indifferent” (p. 268). concerning a paradigmatic shift. According to The author warns of a development in the the author, the term “Europeanisation” has United States that could lead to an economic played an increasingly important role in the Europeanization – with all the consequences political debate in the United States. “It is this would entail. For him, it is above all a mat- shorthand for describing what people think is ter of political and economic culture, especially happening to America’s economy, from the the attitude people have vis-à-vis a market Bush administration’s heavy spending and economy. America is at a crossroads: fiscal stimulus programs to the acceleration of “Do Americans want to embrace modern Eu- deficit spending and a general expansion of rope economic culture? Do they want to live in government economic intervention during a set of economic expectations and arrange- President Obama’s. ‘We’re becoming,’ the ments that routinely prioritizes economic secu- sentiment runs, ‘like Europe’” (p. 7).
German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014 So what would be so bad about that, Europe- ommend as supplement to this one is William an will wonder, being quite convinced of the Voegeli's “Never Enough: America's Limitless superiority of their system of value and beliefs. Welfare State” of 2010 from the same pub- In a detailed and erudite analysis of past and lisher. It is one of the books reviewed right present, the author showcases the issues that here on www.empfohlene-wirtschafts- Europe is up against. The extremely high buecher.de) youth unemployment in the countries of Public debt remains a much greater issue in Southern Europe, for example, is one of the Europe than it is in the United States, though, results of a highly regulated labour market and and there as two obvious reasons for it: For the influence of the labour organisers in these one thing, the public debt in Europe ties in countries who represent those who already with the tremendous demographic problem hold down jobs – at the expense of young that the author discusses at great length. Both people looking for work (pp. 144+). According the birth rate and the influx of qualified immi- to the book, 58 percent of the world's social grants are much lower in Europe than in the expenditures are spent in Europe now United States, dramatically exacerbating the (p. 159), a feat that would be impossible with- debt issue. Secondly, Europe has a much out heavy borrowing. Of course, sovereign lower growth rate than the United States, most debt is an issue in the United States, too, and notably as a result of state interventionism. As rather than being attributable to high military the author warns, however, the United States spending alone, it is also caused by the runa- are heading down a treacherous path of Euro- way costs of the US welfare state. German peanization in this context. readers of the book will rub their eyes in dis- The book is not a polemic diatribe but a scien- belief, but the author cogently elaborates how tific study focusing on a very well informed dramatic the rise in social spending has been historical analysis. At the book's centre is an in the United States over the past few dec- effort to understand the “economic culture” of ades – even if many Europeans have failed to Europe, and to do so against the background take note because they continue to see the of its historic development since the Middle USA as the country of unbridled capitalism, Ages. There have always been two opposing something it has long ceased to be. In 2010, forces at play in Europe, one being market as much as 70.5 percent of public spendings orientation, the other egalitarian statism, as in the US went toward welfare programs – up one of the author's hypotheses has it. The cur- from just 28.3 percent in 1962, and 48.5 per- rent development, however, is mainly headed cent in 1990. More than 67 million Americans in the wrong direction, with the EU integration receive welfare benefits today (p. 185). Con- suggesting more than anything else that “the versely, 49.5 percent of all Americans paid no priorities of Market Europe are being increas- taxes anymore, compared to just 14.8 percent ingly subordinated to those of Social Europe” in 1984 (p. 186). (Another book I highly rec (p. 114). R.Z.
German Real Estate News 24-2014, Volume IX, Issue 24 Date of Publication 25 November 2014
Real Estate Important Note
Stock Market The information provided here may not be deemed financial anal-
ysis within the meaning of the German Securities Trading Act
CW 47 *) (Wertpapierhandelsgesetz) and accordingly does not meet all
pertinent statutory requirements to ensure the impartiality of fi-
nancial analyses and is not subject to a trading ban prior to the
publication of financial analyses.
Statements provided reflect the current opinions and assess-
Helmut Kurz, Head of REITs Fund
ments at the time of drafting this document. These may be ad-
Management at Ellwanger & Geiger justed or altered without prior notification. The information con-
Privatbankiers: tained here has been carefully checked and compiled; however,
no responsibility can be accepted for the accuracy or complete-
ness of such.
European real estate stock up 1.51% The information provided does not amount to investment advice
or any form of recommendation. Please contact our consultants
Following the previous week's consolidation, for individual investment recommendations and comprehensive
advice.
European shares were once again on the rise.
Copyrights regarding all content and graphic design are held by
Despite somewhat disappointing economic
BANKHAUS ELLWANGER & GEIGER KG and are freely availa-
data, due to the extremely low or even ble for use, subject to written authorisation.
negative interest rates for large deposits, the All references to the fiscal position are of a purely general nature.
'urge' to invest liquidity prevailed. Shares Please consult your tax advisor for an individual assessment of
the fiscal aspects of relevance for you and any applicable alterna-
received the biggest boost on Friday following tive assessments. Past performance is not a reliable indicator of
the announcement to purchase government future performance. Financial instruments or indexes may be
bonds confirmed by ECB President Draghi listed in foreign currencies; accordingly, the commensurate re-
turns may be subject to rise or fall due to currency fluctuations..
and even more so through the surprisingly
© BANKHAUS ELLWANGER & GEIGER KG, All rights reserved.
early notification of easing measures by the
Chinese central bank. GERMAN REAL ESTATE NEWS
The EuroStoxx Index gained a considerable Only the contributions titled “Commentary – by Dr. Rainer Zitel-
mann” reflect the editor’s opinion. Responsible: Dr. Rainer Zitel-
4.39%. In contrast, measured against the mann. The facts represented in press items are not checked for
EPRA Index, real estate stock lagged squarely accuracy. Copyright for GERMAN REAL ESTATE NEWS:
Dr.ZitelmannPB. GmbH, Rankestr.17, 10789 Berlin, Germany.
behind with a gain of 1.51%. On Friday in Copying or electronic forwarding of the newsletter, except by
particular, real estate values were barely able contractual agreement with Dr.ZitelmannPB. GmbH, constitutes a
to benefit from the expectation of an improved violation of applicable copyright laws.
global economy fuelled by the Chinese Dr. ZitelmannPB. GmbH
interest rate cut. Dr. ZitelmannPB. GmbH is Germany’s leading consulting compa-
ny for the positioning and communication of real estate compa-
The strongest gainers of the week came from nies and fund companies. It advises national and international
clients in the areas of strategic press and public relations work,
Eastern and Southern Europe, with the
capital market communication, and positioning. Other spheres of
Russian PIK Group OAO coming out on top activity include the compilation of track records and statements of
(+11.2%), followed by Greek REIT Grivalia account, surveys and research documents, as well as the con-
ceptualising of, and copywriting for, customer newspapers, news-
Properties REIC. Third spot was occupied by letters, Internet presentations, and brochures. Dr. ZitelmannPB.
Polish company Echo Investment SA (+7%). GmbH supports the market entry of foreign companies in Germa-
ny, and brokers collaborations for real estate and fund compa-
All in all, very few stocks suffered losses: nies. For detailed information about service spectrum and refer-
Norwegian Property ASA was down by 2%, ence customers of Dr. ZitelmannPB. GmbH, please visit
www.zitelmann.com or send an inquiry directly to in-
while Dutch REIT Wereldhave NV lost 1.6%. fo@zitelmann.com. Pictures: Shutterstock
*)
ELLWANGER & GEIGER Privatbankiers is solely responsible
for these contents.Feri Real Estate Market Rating
The Feri Real Estate Market Rating provides a forward-looking assessment of
potentials and risks for investment return on regional real estate markets. Ratings are
based on detailed econometric forecasts of regional real estate markets including
regional economic development. The rating currently includes more than 150 cities in
Europe, in the United States and in Asia.
In this issue:
Real Estate Market Rating for Helsinki
Finland has successfully advanced into a highly developed industrial nation, and
since the mid-nineties it has been one of the most competitive countries in Europe.
Helsinki is the engine of the nation's economy, and accordingly posts the strongest
rate of value added expansion in Finland. Developments in IT-related fields – both
information and communication, and electrical engineering – have been especially
remarkable. In addition, biotechnology has emerged as a dynamic sector. While this
rapid expansion in technologically innovative fields has attracted great attention, the
sector of financial and business-oriented services has registered the highest growth,
and this sector's share in Helsinki's production is significantly above the national
Finnish average. Although Helsinki is Finland's capital and administrative center, the
slowgrowing public sector has, of late, accounted for only a below-average share of
total output.
Feri rates Helsinki as a business location “AA”, which is unchanged compared to the
3rd quarter 2013. It translates into “high potential, low risk”. With this rating result the
city ranks 2nd in the comparison of European Metropolises.
Office Real Estate
Regarding office real estate Feri rates Helsinki “C”, which is downgraded to the 3rd
quarter 2013. The city ranks 18th among office locations of European Metropolises.
Feri awards the office top locations “C” and the side locations “C”
Helsinki, with around 8 million m2 of office space, is the fourth largest Scandinavian
office market after Stockholm, Copenhagen, and Oslo. It is Finland's commercial
center. The most desirable locations – due to very good accessibility – are in the city
center (CBD). Other attractive office locations are in Ruoholati, in Espoo, and in the
business parks in the vicinity of the airport (Aviapolis). The main sectors generating
demand for office space are business-related services, notably including IT services,
as well as public administration, since Helsinki is Finland's national capital. As an
investment market Helsinki displays only below-average liquidity and transparency.Due to the economic and financial crisis, production plunged by 7%, with correspondingly strong negative impact on the job market – far worse than in Germany. Accordingly, demand for office space in Helsinki was seriously weak in the past. two years. The most typical form of leasing behavior involved tenants moving into cheaper buildings to lower their costs. As new construction declined as a result of the crisis, new space will hardly come on the market this year. Accordingly, the vacancy will decline by and by. Rents will therefore begin to recover this year. We thus estimate an average yearly increase in office space rents of 2%. In the euphoric phase of the last investment cycle, net initial yields in Helsinki’s CBD sank to less than 5 percent. A correction has now taken place, so that on average rental yields have risen by over 120 basis points. The transaction volume sank from a peak of 6 million to less than 2 million in 2009. Since the beginning of 2010, investor interest has gradually increased, and has led to a reversal in the trend in rental yields. Although rents will slightly increase during this year rental yields are not expected to decrease. This can be explained by the current uncertainty on the financial markets prevent that the fair value will be under-run. Because of the severity of the financial crisis in Helsinki, its office market experienced an especially severe collapse, and the recovery phase of the cycle will be slow in materializing, behind most of Europe. However, since the recent mid-year investor interest has strengthened. Hence, initial yields have decreased. Meanwhile initial yields have approached fair value. The potential for further yield effects will remain limited over the years to come. Capital growth will be influenced by the overall positive development of rents.
Retail Real Estate
In the comparison of European Metropolises regarding retail real estate Helsinki
placed 3rd with a rating result of “A”, which is unchanged compared to the 3rd quarter
2013. Feri awards the retail top locations “A” and the side locations “A”.
Almost half of the Finnish retail space is located in Helsinki. Thus, the metropolitan
area attracts many natives. Tourists, especially Russians, bring additional purchasing
power to the region. The most expensive rents can be observed in the inner-city high-
street Aleksanterinkatu. Esplandi, which runs parallel, is especially sought after by
retailers of luxury goods; here, demand also outruns supply. In the recent past newly
built retail space in all locations was absorbed pretty well. At present only a small
amount of retail space is under construction. On these grounds, at least for the time
being, supply is expected to stay limited. Notwithstanding the recent drop in
consumer confidence rents are therefore expected to rise especially in top-locations.
Residential Real Estate
When it comes to residential real estate, Helsinki placed 15th among European
Metropolises with a rating result of “B”, unchanged compared to the 3rd quarter 2013.
Since the mid 1990s demand for rental apartments has exceeded the supply. In-
migration to Helsinki from other parts of Finland, as well as foreign immigration,
helped to drive up demand, which in turn pushed rents noticeably upward, especially
for new apartments in inner city areas. Through the coming years, Helsinki's pattern
of decisively positive net migration (both domestic and foreign) is anticipated to
remain in place. Thus, one can expect that market conditions in which demand
outruns supply will be sustained into the medium term. As a result, rents for both new
and existing apartments are projected to continue increasing during the coming
years.
In Helsinki's housing property sales market, as in its apartment market, positive net
migration induced ongoing healthy demand, which in turn sparked rising prices.
Moreover, Finland's home ownership ratio is quite high. Prices in all segments –
detached single-family houses, town houses, and condominiums – rose sharply inthe second half of the 1990s, but the major economic downturn that set in early in the new millennium halted this upturn. For the years to come, though, one can expect renewed strengthening of demand and thus a resumption of steadily rising prices. But the rates of increase will be much lower than those registered in the past. Contact: Franz Wolfgang Kubatzki, wolfgang.kubatzki@feri.de, phone +49 (0) 6172 916-38 11 Feri Real Estate Market Rating The “Feri Real Estate Market Ratings” issued by Feri appraise the value potential of regional real estate markets, taking into account the attendant risks. The methodological approach underlying Feri Real Estate Market Ratings is rooted in the empirical observation that the performance of a given real estate market depends essentially on the economic power of the respective city. Before this background, Feri develops a separate prognostic model for each city, mapping the regional economy as a system of independent equations. For the purpose of compiling its ratings, Feri uses a detailed regional forecast to analyse the socio-economic development, the economic structure, as well as the ten-year indicators specific to the respective real estate market. The forecast findings are evaluated using a mathematical rating algorithm. The objective behind the ratings is to make the markets more transparent, and thereby to support pending investment decisions of private and institutional investors. Feri ratings are updated on a quarterly basis, and are currently available for 67 German cities and counties, as well as for 60 European cities outside Germany, and 45 cities in the United States. Feri EuroRating Services AG Feri EuroRating Services AG is a leading European rating agency, specializing in the analysis and valuation of investment markets and investment products. Feri is also a major economic research and forecasting institute. At present, Feri employs a staff of around 60 professionals to manage about 1000 customer accounts. The company is headquartered in Bad Homburg near Frankfurt, Germany, with sales offices in the United Kingdom, France, and the United States. In addition to its global industry analyses and ratings of companies, countries, capital and real estate markets, Feri regularly appraises the investment funds registered in each country. Annual market surveys on institutional and mutual funds as well as on closed-end participations provide an overview of the perspectives and actions of institutional investors. In the real estate sector, Feri conducts global real estate research, performs real estate valuations, and provides ratings of companies, REITs, real estate, real estate portfolios, and indirect real estate investments (open-end and closed-end real estate funds). For more information on Feri EuroRating Services, please go to http://frr.feri.de/en/our-company.aspx.
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