1. 70 PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com 71
GERMAN RESIDENTIAL PROPERTY BREAKFAST GERMAN RESIDENTIAL PROPERTY BREAKFAST
Values to rise but no
bubble brewing
The new listing of German property firm LEG by
Goldman Sachs investment fund Whitehall and Per-
ry Capital, one of a handful of major European IPOs
since the credit crisis, has put the residential property
market in Europe’s largest country firmly in the spot-
light. But despite strengthening investor demand for
property in undersupplied cities and signs more lo-
cals in hotspots such as Berlin want to buy their own
properties, the panel dismissed concerns of a bubble.
They said the market is coming back in line with the
rest of Europe; German property is reclaiming some
of its pricing power.
Unlike much of the rest of Europe, where cheap
lending from banks fuelled a boom in property buy-
ing, which then turned to bust as lenders worried
whether they could get their money back, the Ger-
man property market has remained stable over the
last three decades, thanks in large part to German
consumers’ unwillingness to put themselves in debt.
“I think what we are seeing in Germany is a struc-
tural re-pricing of the market up to a level where it
was in the mid-’80s, when Germany was a far more
expensive country relative to its euro neighbours,”
commented Groom. Accommodation accounted for
about 40% of the average person’s income in West
Berlin in 1992, but today is just 22% of their outgo-
ings. That compares with around one third of income
in London, he estimated.
Bourbonnais added that growth in Berlin is no
flash in the pan and will continue for the next 10
years. “Demand is increasing, so values are also going
up. If you look at certain cities in Germany there is a
continued increase in population which drives fun-
damental values. So when people say there is a bub-
ble I don’t believe it. There is fundamental growth in
many cities.”
Corestate’s Burns said the absence of the property
boom and bust in Germany over the last couple of
decades, endured by so many of its European neigh-
bours, is attracting investors into its housing market
now as a safe haven. “They can also look back histori-
cally and feel a lot more comfortable vis-a-vis the UK
or Spain that there hasn’t been a bubble in the under-
lying property values.” And with many regions still
undervalued, the prospect of a price bubble emerging
in the future remains low, said Corpus Sireo’s Ed-
wards. The group manages more than 40,000 residen-
tial units for its investors. “My personal view is that
values will continue to rise, returns will be stable and
volatility will remain low,” Edwards said. pie
Berlin booms, others op-
portunities also available
A continued influx of people to Berlin and the rede-
velopment of swathes of the German capital has sin-
gled out the political hub as one of hot spots for
growth in property market. However, that has been a
long-time coming, said Skjerven, CEO of his own
Berlin-based Skjerven Group.
Skjerven first invested in Berlin in 2006 on behalf
of a Norwegian group but it wasn’t until 2010 that
population growth filled existing vacancies and prop-
erty values and rents began to pick up. Some 30,000-
35,000 people are now moving to the city every year,
creating demand for 15,000-20,000 new homes. But
only about 4,000 units are being built, all at the top-
end of the market, creating the undersupply that is
driving up prices. In the last two years, the asset class
has caught up with its business plan, compensating
for its first four years of underperformance, Skjerven
said. “The Berlin story will run at least five years
more in terms of rent development and it will run
five to ten years more when the Berliners are starting
to buy their own apartments,” he added.
Centuria Real Estate Management has been work-
ing with large clients to redevelop large apartment
blocks in prime locations, and selling off units to
people eager to own their own homes. “There is huge,
huge demand from people want to buy their own
condos. They know values are increasing in Berlin
and will steadily increase,” Bourbonnais said.
But far from being the only engine room for Ger-
man residential, other locations create great opportu-
nities, the panel said. “There is room for improve-
ment in a lot of other areas. Even if you go to B
location close to city centres… these are giving inves-
tors huge opportunities to increase value,” said
Charles Smethurst, CEO of Hannover-based Dol-
phin Capital, which specialises in refurbishing listed
buildings for luxury accommodation.
More locations will profit as the inexorable move
to urban living continues, said Groom, creating un-
dersupply of housing in eight or nine of the largest
cities. Some 12,000 people moved to the German fi-
nancial capital Frankfurt last year, creating demand
for about 7,000 new homes, but only 2,500 were
built. As a result capital values rose between 14% and
18% - as well as Stuttgart and Munich - with rental
values running only slightly behind. Even in East
Germany, which some dismissed because of low in-
come levels, falling population and high vacancy
rates, opportunities exist. “I think it’s an excellent
opportunity if you can buy things below replacement
cost. I’m not very worried about people building a lot
more stuff and competing with me. If you manage it
correctly and put a lot of capex in, even in negative
demographic cities you can have a very nice business
with very nice yields if you buy well.” pie
Investors drawn by
returns with few risks
With yields from fixed income investments stub-
bornly low and equity markets plagued by volatility,
investors large and small have been reassessing prop-
JonesLangLaSalle’sAndrew
Groom(topleft)makesakey
pointatPIE’spackedGerman
ResidentialPropertyBreakfastin
Londonlastmonth,andDolphin
CapitalCEOCharlesSmethurst
(topright)outlineshiscompany’s
businessmodelfocuseonmonu-
mentprotectedupmarketresi-
dential.Audiencemembers(cen-
tre)swapoffexperiencesduring
networking.EinarSkjerven,CEO
ofBerlin-basedSkjervenGroup
(above)describestheopportuni-
tiesintheGermancapital.
German Residential Property Breakfast: No
fear of bubble, reclaims rightful place, pricing
PIE’s German Residential Property Breakfast brought five experts
to London on 31 January 2013 to discuss the outlook for the sec-
tor as investor money continues to flood in. Held at law firm DLA
Piper’s London offices, PIE welcomed Francois Bourbonnais, di-
rector of Centuria Real Estate Management, Luxembourg; Phillip
Burns, CEO, Corestate Capital Advisers, London/Zug; Corpus Sireo
MD Douglas Edwards, Luxembourg; Andrew Groom, head of
Jones Lang LaSalle valuation and transaction advisory Germany,
Frankfurt; Einar Skjerven, CEO, Skjerven Group, Berlin; and
Charles Smethurst, CEO, Dolphin Capital, Hannover.

2. GERMAN RESIDENTIAL PROPERTY BREAKFAST
erty investments, attracted by its better returns and
relatively few shocks.
“There is huge interest,” said Groom, whose JLL
division values some €30bn of residential assets in
Germany annually. The interest comes from private
equity groups and large pension fund and insurance
groups. “We are seeing a lot more of this pension
fund and insurance money looking to be invested. In
the absence of yield anywhere else, there will be more
and more of this money coming in on the institu-
tional side.” Some two-thirds of the money coming
into German residential comes from domestic Ger-
man institutions, he added.
But family offices and high net worth individuals
are also looking to plough money into residential,
said Corpus Sireo’s Edwards, though sovereign wealth
funds that have been hoovering up large commercial
and retail assets around Europe have largely steered
clear as investments are too small. Some Middle East-
ern investors have turned their backs German prop-
erty investments because of fears of losing money.
“They just don’t want the risk of putting money into
mid to low end resi, higher up on risk curve. They
have been completely burned,” said Bourbonnais.
On the other hand, large Canadian investors, such as
Caisse de dépôt et placement du Québec, are allocat-
ing more of their capital to real estate, which will cre-
ate more demand for residential assets.
With interest rates expected to remain low as Eu-
rope grinds its way through austerity and deleveraging
to recovery, the money flowing into the sector will
stay, Bourbonnais said. “If we continue in this malaise
for the next five years, which I think is highly likely,
then I think the money will be very sticky. It provides
an interesting yield premium for people.” pie
Germany, a nation of
home owners?
While all agreed on the attractive outlook for Ger-
man residential property in general, the panel was
split on whether the population would become ex-
tensive home owners. The level of ownership, among
Europe’s lowest at 43% compared with the UK at
over 70%, will rise as long as interest rates remain
low, said Groom.
“If we get to 50%-55% in the next six to seven
years that would be a very good move, and it’s very
much dependent on interest rates remaining low and
offering people the opportunity to compare and con-
trast rental rates versus capital values,” he told the
PIE Breakfast. Increased immigration will keep up-
ward pressure on rents, driving more people to invest
in their own homes, added Bourbonnais. In Berlin,
where only about 14% of the population own their
homes, Skjerven expects ownership to increase by
about 1pt a year. However, the rest of the panel
thought Germans will in the main remain rental ten-
ants, not owners. “If you look at property redevelop-
ment we have a booming market, but the ownership
percentage has not really inc dramatically,” said Sme-
thurst.
Burns noted that the main reason for German hesi-
tancy to own homes is because the nation is culturally
cautious about spending and taking on large debts. “I
think they feel vindicated looking at the UK, Spain,
the US, where the whole culture is predicated on ‘you
must own your own home, you must have a stake in
the ground, you must look after your own pension
through your own house equity’. That hasn’t worked
out that well in a lot of places.” With high levels of
personal savings, Germans are being attracted to in-
vest in property, but not necessarily their own. “They
would rather own a third party property than live in it
themselves,” Edwards said. pie
PIE’s German Residential Prop-
erty Breakfast attracted over
100 delegate registrations, with
professionals eager to hear
more (top left) about the key
asset class. Centuria MD Fran-
cois Bourbonnais (top right)
described his company’s ap-
proach, and Corestate’s Phillip
Burns (middle) also explained
where his firm sees opportuni-
ties in the sector. Audience
members (above) were eager
to ask their own questions.
BULLETIN BOARD
72 PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com 73
Diary dates
upcoming in 2013
March 12-15,
Tuesday-Friday
MIPIM 2013,
Cannes
This event draws upon its unique international
coverage and reputation - plus sunny Cannes
weather! – to attract influential decision
makers, offering them access to a showcase of
development and investment projects. A key
date in the European property calendar.
More information: www.mipim.com
April 23, Tuesday
PIE French Urban Opportuni-
ties Briefing, London
In an afternoon event, PIE hosts
the latest in its highly popular series of
expert seminar panel discussion with senior
real estate executives. PIE Premium
subscribers gain free access.
More information:
www.pie-mag.com/events
April 9, Tuesday
PIE Nordics Property Breakfast,
Frankfurt
PIE hosts the latest in its highly popular
series of panel discussion with senior real
estate executives. PIE Premium subscribers
gain free access.
More information:
www.pie-mag.com/events
April 17-18,
Wednesday-Thursday
INREV 2013 Annual Conference,
Barcelona
Europe’s property funds association will
provide insights and face the key question of
how the industry moves forwards. The
conference will also host INREV’s 10th
anniversary celebrations.
More information: www.inrev.org
April 9-10,
Tuesday-Wednesday
9th Annual International Real
Estate Conference, Croatia,
Zagreb
CroatianaccessiontotheEuropeanUnionwill
dominatethisyear’sconference,whichlastyear
attractedover500participantsand80speakers
from15countries.
Moreinformation:
www.filipovic-advisory.com
April 17-18, Wednesday-Thursday
ICSC European
Conference, Stockholm
This year’s European Conference will examine
how, despite current challenging times, retail
remains dynamic and innovative in a world
where consumer purchasing journeys have
evolved.
More information: www.icsc.org/2013EU
March 22, Friday
PIE Special Focus
Roundtable, London
PIE’s first Special Focus Roundtable will discuss all
aspects of the asset class Student Housing. All
companies active in this sector in UK and Europe
are welcome to join the discussion, which will be
featured in a multi-page reportage in the PIE
April magazine.
More information: events@pie-mag.com or
mark.cunningham@pie-mag.com
May 14-15, Tue-Wed
IPD/PIE Central & Eastern RE
Conference, Vienna
Europe’s foremost property benchmark
measurement group IPD and real estate
investment magazine-portal PIE’s 3rd
annual CEE Real Estate Conference is now
firmly established as the property event of
record for this fast-growing region. Join
confirmed speakers S IMMO, Blackstone,
UBS, Sorgente and others.
More information: www.pie-mag.com
March 27,
Wednesday
ICSC Retail Connections,
London
Organised by the ICSC, this business event
brings together mall owners, developers and
agents who have space to lease with retailers
who are looking for new opportunities.
More information:
www.icsc.org/2013LRC