BNP Paribas Real Estate Holding GmbH
Frankfurt/Main (ots)
The sharp rise in financing conditions, inflation at a historically high level, macroeconomic uncertainties and new risks in the banking sector resulted in a very subdued start to the year on the residential investment markets. Nationwide, EUR 1.15 billion was invested in larger housing stocks (from 30 residential units) in the past three months. This clearly missed the result of the first quarter of the previous year at 71%. The long-term average was also undershot by 79%. Greater clarity about the further course of the interest rate cycle should ensure noticeably higher market momentum over the course of the year. This is according to an analysis by BNP Paribas Real Estate.
“In the first three months of 2023, the investment volume was only around EUR 1.15 billion, which was the weakest first quarter since 2011. The residential investment markets have taken the weakness of 2022 into the new year. The changed economic General conditions, the turnaround in interest rates with the resulting sharp increase in financing costs and the sharp rise in inflation have left their mark on the financial markets and have also put the otherwise resilient German residential investment market into a new pricing phase ” Large-volume transactions could therefore hardly be realized. However, past experience shows that such market phases typically do not last and are dissolved by new players entering the market in order to seize opportunities when the moment is right a more constructive exchange between buyer and seller with a price level that is acceptable for all parties,” explains Christoph Meszelinsky, Managing Director and Head of Residential Investment at BNP Paribas Real Estate GmbH.
Few major deals, market remains fragmented
The low overall volume is largely due to the very low level of investment activity in the large-volume segment. In the segment above EUR 100 million, only two transactions were registered, accounting for 35% of the total volume (Ø 10 years: 58%). After all, the medium-sized deals (EUR 50-100 million) with a share of 28% are well above the long-term average (16%). Overall, however, the market is still much more fragmented than in previous years. On average, only around EUR 37 million was invested per deal. One reason for this may be that institutional investors, who usually finance a large part of this with debt capital and are particularly strong in the large transaction segment, are currently not very active.
Older portfolio properties and projects strong
The fragmented nature of the market also has an impact on the distribution of the investment volume across the individual asset classes. The large-volume existing portfolios, which usually dominate the investment volume, accounted for just under 10% in the first quarter. On the other hand, almost two thirds (65%) of the investment volume is made up of older existing properties, which is well above the 10-year average (15%). After all, EUR 746 million (average 10 years: EUR 521 million) was invested in this asset class. One explanation for this is that older portfolio properties tend to be more sensitive to interest rates. Investors first try to sell their older portfolio properties in order to be able to realize new, more secure opportunities. On the other hand, projects and forward deals (Ø 10 years: 21%) have a relatively high share of almost 26%.
Family offices largest group of buyers, US capital stays away from the market
Two groups of buyers, who normally only get shares in the single-digit percentage range, clearly dominated the market in the first three months: Real estate companies contributed around 18% and family offices with 40%, well above-average shares of the investment volume. A key reason for the strong market presence of family offices is likely to be their good equity base. In recent years, real estate AGs/REITs (Ø 10 years: 36%) have usually had a strong impact on the market. However, they did not appear as buyers in the first quarter. The reasons for this are likely to be the more difficult procurement of outside capital and the valuation corrections in the existing portfolios of the companies. The market was shaped more strongly than usual by German and European capital (cumulative share of sales: 94%). On the other hand, US investors largely stayed away from the market. They came up with a below-average share of 2%.
Investments mainly in A cities, Berlin and Leipzig
Investors were particularly looking for the safe waters in the A cities. The seven largest cities accounted for a share of almost 68%. On a long-term average, the A cities have a turnover share of around 42%. A possible reason for this is the more stable investment environment in the Class A cities and the fact that pricing tends to be somewhat simpler due to the higher number of transactions. Berlin has a clearly above-average share of almost 48% (Ø 10 years: 21%). Although the investment volume in the federal capital is also below the average of recent years, it is comparatively robust at EUR 546 million. More than half of this was due to a large part of the sale of S Immo’s Berlin residential portfolio to an Austrian family office. For the first time, Leipzig also contributed a two-digit share of sales (11%) (EUR 120 million). In contrast, Hamburg (EUR 100 million; -76%), Munich (EUR 56 million; -49%), Düsseldorf (EUR 48 million; -68%) and Stuttgart (EUR 26 million; -26%) remained significant below their usual results. Frankfurt and Cologne were unable to record any transactions.
Further increase in net prime yields compared to Q4 2022
In addition to interest rate hikes by the European Central Bank, financing costs have also continued to rise. Inversely, the net prime yields for new build properties increased again noticeably at the beginning of the year. The increase compared to the fourth quarter of 2022 ranged between 15 and 25 basis points. Munich is still the most expensive location (3.00%). It is followed by Berlin, Frankfurt, Hamburg and Stuttgart at 3.05%. 3.15% is currently used for Düsseldorf and Cologne.
perspectives
“The first three months of the year show that the pricing phase on the residential investment market has not yet come to an end. There are currently few players who dare to come out as market makers and provide new price indications. The interest in investments in residential real estate is still high, but the majority of buyers and sellers are still looking for a new price level that all parties can bear in order to be able to successfully complete transactions.The European Central Bank has recently repeatedly indicated that it is fulfilling its mandate to combat the Against this background, the ECB is only likely to give more visibility to the further interest rate path in the second half of the year, when a significant decline in inflation, also due to base effects, will be visible or foreseeable A noticeable slowdown in interest rate increases is to be expected.This should give market players more planning security and lay the foundation for a significant increase in market dynamics in the second half of the year and in the coming year. Nevertheless, it can be assumed that when the markets pick up speed, acquisitions will initially continue to be made very selectively. Large-volume transactions are therefore likely to remain rare for the time being. Also due to the tendentially lower price level compared to the past few years, the investment volume in 2023 is likely to remain below the volumes of recent years,” says Christoph Meszelinsky, summarizing the future prospects.
Press contact:
Chantal foam
Head of Public Relations
BNP Paribas Real Estate Holding GmbH
Goetheplatz 4 – 60311 Frankfurt am Main
Phone: +49 (0)69-298 99-948
Mobil: +49 (0)174-903 85 77
E-Mail: [email protected]
Original content from: BNP Paribas Real Estate Holding GmbH, transmitted by news aktuell
