The situation is schizophrenic: foreign investment companies are investing billions in German real estate—at the same time German companies and institutions are currently parting from their local real estate properties and are investing in foreign real estate.

It is not the Far East or North America that are the focus of international investment companies, but rather Europe. Considering the seemingly extreme foreign debt of the USA, almost all internationally renowned experts are counting on a sustainable drop in the Dollar. They are expecting value stability or even currency gains from the Euro, less from the British Pound. In London, this risk is accepted; the real estate market is one of the most attractive in the western world, so that the risk of loss seems low. CB Richard Ellis notes that the “total annual return for all property”, the total return for all British real estate divisions, were at 20.5 percent in July 2006, of that 2.5 percent are omitted for rent growth. The majority share is attributed to the value increase of real estate. In comparison: British government loans with a duration of five to 15 years achieved a return of only 0.7 percent. Real estate is currently—before share investments—the best investment class.

Photo: International investors see significant potential in residential real estate in Germany. If the economy persistently improves, the demand for housing will increase accordingly, and rents and prices will skyrocket.

After 156 billion Euros were invested in the European real estate markets in the previous year, Jones Lang LaSalle predicts a volume of 180 to 200 billion Euros this year. Approximately 95 million Euros flowed into the European real estate markets already in the first half of the year, roughly 20 percent of that into Germany. Real estate is undervalued from the international perspective.

Investor’s Darling: residential real estate    
The prices and rents for German real estate have come under heavy pressure since the mid-1990s and have been fluctuating ever since—that goes for both residential real estate, and office buildings and retail properties. Still, German real estate is expensive compared to many foreign markets; however, they seem to have the largest recovery potential, relative to the price developments in growing economies, since the construction industry and construction services sector have outright collapsed since the mid- 1990s. For example, nearly 650,000 apartments were built in Germany in 1995; less than 250,000 were built last year. The development of apartment housing is even more dramatic than the overall picture: the number of completed rental apartments and condominiums shrank over the past ten years from 300,000 to 60,000 units. In a number of cities and regions, the development of rental apartments has succumbed for years.

At the same time, however, more than 100,000 new households have sprouted up year for year. Considering the increasing unemployment rates and job uncertainty, many of these households have postponed their demand for housing for the meantime. However, with a sustained improvement in the economy, demand will make a jump for the better and will be evident in noticeably increasing rents and housing prices.

Photo: The office markets will experience a split. High quality spaces for “high professionals” are in demand that also offer a certain ambience.

The same goes for companies: they have cut jobs and gone through in partially painful reorganisation processes, are more streamlined, more agile, and have proven for some time now in the foreign markets just how capable they are of making increases in returns. If these potentials could be
seen in the domestic economy, many experts predict that the real estate markets could enter a new growth phase and the high vacancy rates will gradually melt away. For several months now, the number of employees subject to social insurance contributions has been on the rise, after more than one million jobs had been cut since 1990. Thus, the economy is recovering, even though the shift in jobs to low-wage and low-tax countries continues. Growth is thus expected in high-quality office space for “high professionals”, which is already experiencing a labour shortage. This gap between a shrinking and a growing labour market will influence the office markets of the future—with significant vacancy rates in one category, and deficits in the other.