Investment climate: German secondary cities favoured by foreign investors

Germany takes pole position in the acquisition strategies of European real estate investors. Alongside the top seven locations, there is also strong interest in the country’s second-tier cities. That is the finding of a recent survey of 150 institutional property investors in Germany, France and the UK by Union Investment. Some 80 percent of German investors, 56 percent of French investors and 52 percent of British investors are looking to acquire properties in German secondary cities. No other country achieves similar approval ratings. In addition to the three European core markets, the Netherlands, Belgium, Sweden, Spain and Poland are also relatively popular among French and British investors in particular when it comes to investing in real estate in secondary cities, with these countries having approval ratings of 20 to 40 percent. The majority of the respondents (around 60 percent) stated that they had the freedom to look beyond the major cities and invest in secondary locations. Conversely, some 40 percent focus almost exclusively on investment in prime Western European locations. According to the survey, 77 percent of real estate investors expect the 2020 transaction volume for commercial properties in Europe to at least reach the high level achieved in the previous year.

Some 26 percent of respondents actually expect an increase; the pessimists who anticipate a decline are in a clear minority, at 15 percent. Hopes for even more market activity than last year are focused primarily on the residential segment. Here, 51 percent of respondents expect a further increase in the European transaction volume. Some 39 percent believe hotel transactions will rise, while 29 percent expect more transactions in the office segment. Only in the retail segment are the optimists a tiny minority, at 7 percent. Compared to the last survey six months ago, there are only very minor fluctuations overall in the real estate investment climate index for Germany at 63.2 (-0.2) and France at 67.6 (+1.0). The biggest change was recorded for the UK, where the climate barometer has jumped by 5.5 points to 64.4, thus exceeding the sentiment index for the German market for the first time in a long while. “Increased political stability and planning security in the UK has translated into an immediate improvement in the real estate investment climate. Going forward, many investors are expecting rental price increases. Both factors together will lead to a much increased appetite for real estate in London,” said Olaf Janßen, Head of Real Estate Research at Union Investment.