German Cities are Safe Bets for Real Estate Investment and Development in 2017
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Berlin,
Hamburg, Frankfurt, and Munich take top spots in ULI and PwC’s annual city
rankings
FRANKFURT (3 November 2016) – In the search for safe havens, German cities will be Europe’s most
preferred real estate investment and development destinations in 2017,
according to Emerging Trends in Real Estate® Europe 2017. Berlin, Hamburg, Frankfurt, and Munich occupy four of the top five spots
for 2017 investment and development prospects in the annual forecast published
jointly by the Urban Land Institute (ULI) and PwC. The report is based on the opinions
of almost 800 real estate professionals in Europe, including investors,
developers, lenders, agents, and consultants.
According to the report,
Germany is currently the most popular destination in Europe for real estate
investors and developers, with recent data from Real Capital Analytics confirming that Germany has overtaken the UK in post-EU-referendum
investment volumes. While remaining Europe’s primary magnet for global capital,
attracting €31 billion of capital inflows in the 12 months to end September
2016 (according to Real Capital Analytics), London has fallen from number 11 in
2016 to number 27 in 2017 in the Emerging Trends Europe city rankings
for investment and development prospects.
The dominant performance of
German cities in the Emerging Trends Europe rankings demonstrates the
strong fundamentals of the German market. Berlin has maintained its top
position for the second year in a row, cementing its place as a trendy and
dynamic global gateway. Hamburg, seen as a solid bet amidst economic
uncertainty in Europe, also repeats its number two ranking from last year.
Frankfurt, Germany’s business centre, has soared 11 places to number three,
pushing Dublin into the fourth position,
while Munich holds steady at number five.
This positive outlook for
German cities comes in the aftermath of the EU referendum outcome, which has
left investors and developers uncertain about the UK’s immediate and
medium-term future. Ninety percent of industry leaders surveyed in Emerging
Trends Europe predict that UK investment and property values will fall over
the next 12 months.
However, despite this
short-term uncertainty over London, most interviewees have faith in its
medium-to-long-term future as a key global city, the report says.
“The fallout from the Brexit
vote gives an extra boost to the already-strong German real estate market,”
said ULI Europe CEO Lisette van Doorn. “With considerable political and
economic uncertainty in Europe, many real estate investors are willing to
sacrifice some yield in return for lower risk. In this risk-off environment,
the stability of German cities becomes even more attractive.”
Not surprisingly,
international political instability is expected to pose significant challenges
in the coming year, with 89% of respondents listing it as their top concern for
2017. Forthcoming elections in France, Germany, and the Netherlands, as well as
concerns about migration and terrorism, add to this uncertain outlook.
Forty-six percent of respondents believe that the migration crisis will get
worse in the coming year, and interviewees reported terrorism as a key threat
to investor confidence. This international political instability is not
expected to dissipate quickly: nearly two-thirds of survey respondents expect
political uncertainty in Europe to worsen over the next three to five years.
As well as geopolitical risks
and economic growth prospects in both the short and long-term, the report draws
attention to a number of potentially more significant influences that are taxing
the minds of Europe’s real estate leaders.
“Given the timing of this
year’s report, which coincided with a period in which people are coming to
terms with the result of the UKs referendum on the EU, it was inevitable
that this would become be a common reference point for the real estate
industry’s uncertain view of the future,” said PwC’s Real Estate Director
Gareth Lewis. “But after taking the pulse of the real estate industry’s
leaders, it’s clear that below the surface, there are complex and significant
influences at play beyond today’s geopolitical issues. These are changes which
are altering society and our industry’s view of the future role of the built
environment. Technological disruption and the growing relevance of the sharing
economy is shifting the centre of gravity from financial asset to product, or
more broadly ‘real estate as a service’.”
Despite high levels of
uncertainty and change in Europe, however, respondents are only slightly less
confident about their business prospects than they were last year. Just under
half expect no change to confidence, profitability, or headcount in 2017.
Furthermore, the report finds that capital flows will remain strong and
investors will continue to value European real estate for yield in comparison
to the risk/return expectations in other asset classes.
Sector-wise, the report notes
that despite the challenges associated with investing in alternative real
estate sectors, they are growing in popularity and are predicted to offer some
of the best returns. Urbanisation and changing consumer habits have paved the
way for alternatives such as hotels, student housing, and assisted living
facilities. Eight out of the top ten sectors for investment prospects in 2017
relate to residential real estate —leaving traditional offices and shopping
centres to be classed among the riskiest assets.
Top Markets for Real Estate Investment and Development in 2017
According to the report, the top five European markets for real estate
investment and development[1] in 2017 are predicted to be:
1. Berlin– The German capital scored the highest in
all four survey categories: investment, development, and prospects for a rental and capital growth. Berlin has
established itself as a large, highly-liquid real estate market with global
appeal—evidenced by the €3.9 billion invested in the city in the first six
months of 2016 according to Real Capital Analytics. Despite steep pricing, the
office and housing markets are still thriving due to their strong growth
potential.
2. Hamburg– At number two for the second year running, Hamburg’s success is due in part
to the local government’s massive investment in transport and the development
of new, high-quality urban districts
along its waterfront. Hamburg’s liveability
and its diverse economy, which encompasses manufacturing, media, life sciences,
and information technology, also bolster its high standing. The rental growth of 4% over the past year
helps to explain the popularity of Hamburg’s office market, together with
yields of 3.75% for prime assets, which although expensive are still cheaper
than those achieved in the city’s German rival, Munich.
3. Frankfurt– Investors are largely optimistic about Frankfurt, which has climbed 11
places to number three. Not only is it considered a stable market amid
post-Brexit uncertainty, but it is also predicted by many investors to provide
an office destination for bankers relocating from the City of London. However,
questions remain about the potential consequences of relocating large banking
operations to Frankfurt, as Germany is already over-banked.
4. Dublin– While it has slipped one place to number four, Dublin is still seen to be
an overall beneficiary of Brexit. One private equity investor predicted that
while the city will likely not pick up financial services headquarters from the
UK, it will pick up back-office functions, which could still have a big effect
on the market. Continued economic growth, foreign direct investment, and strong
demand in the housing market also play an important role in Dublin’s prospects
for 2017.
5. Munich– Rounding out Germany’s near-dominance in the top five is Munich. Investors
perceive Munich as a perennially solid bet, a quality that is particularly
valuable in a risk-off environment. Survey respondents indicated that buying
property in cities like Munich allows investors to take on more risk without
worrying about the basic security of
their investment. While vacancy rates in Munich are at a 14-year low of 4.8%,
finding assets to buy is challenging and the city remains one of the priciest
markets in Europe.
Top 10 European Cities for Property Investment and Development
2017
Ranking
|
2016
Ranking
|
Change
|
1
Berlin
|
1
|
↔0
|
2
Hamburg
|
2
|
↔0
|
3
Frankfurt
|
14
|
↑11
|
4
Dublin
|
3
|
↓1
|
5
Munich
|
5
|
↔0
|
6
Copenhagen
|
4
|
↓2
|
7
Lisbon
|
16
|
↑9
|
8
Stockholm
|
6
|
↓2
|
9
Madrid
|
8
|
↓1
|
10
Lyon
|
25
|
↑15
|
Emerging Trends in Real Estate® Europe
Emerging Trends in Real Estate® Europe is a joint report published annually since 2003 by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, as well as trends by property sector and geographical area. It is based on the opinions of almost 800 internationally renowned real estate professionals, including investors, developers, lenders, agents and consultants.
About the Urban Land Institute
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has almost 40,000 members worldwide representing all aspects of land use and development disciplines. For more information, please visit europe.uli.org.
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has almost 40,000 members worldwide representing all aspects of land use and development disciplines. For more information, please visit europe.uli.org.
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network
and/or one or more of its member firms, each of which is a separate legal entity.
Please see www.pwc.com/structure for further details.
©2016 PwC. All rights
reserved.
[1] The way cities are ranked in Emerging Trends Europe has changed.
This year, the ranking table is based on the scores awarded for both investment
and development prospects. As last year’s rankings were based on investment
prospects alone, they have been adjusted to reflect both investment and
development potential.
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