The Strategist

Germany Is the Most Attractive Real Estate Market Now

03/16/2016 - 14:42

Germany deprived the UK of the title of the most attractive market for investment in commercial real estate in Europe.

Beek100 via wikimedia commons
Beek100 via wikimedia commons
The UK had been considered the most attractive market during the previous two years, according to an annual survey of real estate investors held by CBRE company. However, the UK housing market lose its appeal and yielded the position to the Germany this year.

About 17% of investors called Germany the best country for investment in real estate, and only 15% of investors said this about the UK. To compare, last year, 31% of respondents preferred the United Kingdom, shows CBRE report.

This change happened due to the UK’s weakening economic growth prospects, as well as concern on the eve of the upcoming referendum over whether the UK remains in the EU.

This year, Germany has taken the leading position partly due to the fact that investors are increasingly looking at opportunities in the region, said CBRE. Particularly pronounced was increased attention to Central and Eastern Europe. Investors are looking for regions with high yields, the report said.

London still remains the most attractive city for investment in real estate in the EMEA (Europe, Middle East and Africa) region.

However, this year only 15% of investors gave the nod to the UK’s capital. For comparison, there were twice as many in 2015, according to CBRE.

Last week, the Department of Asset Management of Deutsche Bank AG warned that the real estate in Central London "is at risk of price correction."

Such a decline in interest occurred after many years, during which there was an increase in demand for UK property.

This sector is perceived as a safe haven protected from financial turmoil. At the time, revenues seem attractive compared to other assets, such as bonds.

United Kingdom, especially London, has become a major destination for investment in real estate during the boom in the market. London is often the first destination for investors from Asia and the Middle East, who want to start a business outside their regions.

Last year, the UK property market recorded a new record: the volume of investments reached £ 65.8 billion ($ 93.11 billion), according to Real Capital Analytics. More than half of them fell on London.

However, the pace of investment slowed down in the second half of the year, down to 18% compared to the same period of 2014, according to CBRE. Foreign investors started to leave the market thanks to falling oil prices and growing uncertainty in the global economy.

Uncertainty about the outcome of the referendum, which will be held in the UK in June, also cools the investors’ ardor. According to a survey conducted by CBRE in February, almost three-quarters of respondents said that the UK’s quit would make the country less attractive for investment.

Analysts also said that some areas in the UK property market are close to the peak values in 9 years after the previous real estate boom ended.

In its last week’s letter to investors, Deutsche Asset Management noted that exact timing of the projected decline in real estate prices in Central London is not known yet. Before, such a correction lasted about two years, during which prices fell by more than 30%.

"There is general uncertainty, so the market is in limbo," - said Chris Brett from CBRE.

The weakening of the world economy is considered to be the main threat to the real estate market in 2016, followed by internal economic problems.

Last week, OECD said that economic growth would weaken in many countries, including the UK, US and Germany.

CBRE’s survey of 423 investors took part in the period from 8 January to 4 February.