For the fourth time in a row, the residential investment market recorded significant growth, compared to the previous year, in 2019. At 20 billion euros, the transaction volume is two billion euros above the forecasts and exceeds the previous year’s value by seven percent. It should be noted here that the number of transactions with 135,500 sales decreased by one percent. The higher volume is primarily due to a price increase, explains JLL in a recent press release. “Currently around 153,300 euros per unit or 2,300 euros per square meter are paid for residential investments, which is almost eight percent more than in the previous year and about 55 percent more than the five-year average. In addition, the prices of project developments have compared to the previous year by nine percent to 303,300 euros per unit or 4,600 euros per square meter, “says the Research Department of JLL Germany.
Accelerated dynamics on the Berlin real estate market
Most of all, the current situation in individual submarkets, especially Berlin, is a significant factor which influences the total generated volume. On the one hand, the demand for housing, especially from institutional side, remains high. On the other hand, the discussions about the Berlin rental cap and expropriations led to the fact that several larger portfolios were reallocated and thus accelerated the market dynamics. According to JLL: “The development is also evident in the analysis of the setup and reduction of residential property assets. In particular, the municipal, non-profit housing associations have increasingly appeared as buyers in the last half of 2019. Public pressure after increasing governmental intervention on the German residential market result in the fact that municipalities are significantly expanding their activities on the housing market. Over the entire year, the municipal housing associations increased their investment by almost 100 percent compared to the previous year to a total of 2.4 billion euros.” This led ground to one of the largest transactions in the last quarter of 2019, namely the sale of 2,180 apartments by Deutsche Wohnen to the municipal Degewo.
Berlin politics is slowing down residential investments
In response to the ongoing discussions in Berlin’s politics, many players have withdrawn from the local real estate business and sold existing properties or reallocated investments in project developments to existing properties. Others have at least temporarily paused their activity in residential investments to wait for definite political decisions. However, it can also be observed that some have stopped their investments completely. Overall, the Berlin real estate market therefore recorded transactions of 3.7 billion euros, 19 percent above the previous year’s result. At the same time, however, it is also visible that it has increased activity in other A-locations massively. Frankfurt achieved the next best result with an increase of 87 percent and transactions worth 2.4 billion euros. Activity in Hamburg also increased by 29 percent compared to the previous year, which corresponds to sales of 1.2 billion euros.
Markets are dominated by smaller sales
In 2019, some big sales were also part of the market, but over 90 percent of the transactions were smaller projects and portfolios with fewer than 800 apartments. With 15,700 residential units and transactions worth approx. 5.1 billion euros, project developers have increased their sales by 12 percent compared to the previous year and thus form the strongest seller group. This continues the trend of project developments as an alternative to existing properties with current rental contracts as an investment. Forward deals also make up a significant market share with a transaction volume of 5.5 billion euros and improved their level by approx. six percent. In the long term, on a five-year average, there is an increase of 66 percent. The forward deals have proven to be particularly profitable for special funds (1.7 billion euros; +13 percent) and real estate companies (0.5 billion euros, +74 percent).
Market developments 2020
Forecasts for 2020 are currently based on similar developments on the real estate market as in the previous year. The outcome of political discourses in particular can have a positive and negative impact on the residential property market. Despite falling yields and the pending state of current debates, the demand for real estate investments remains high. JLL expects the transaction volume in 2020 to be at a similar level to the five-year average of 18.7 billion euros.
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