European Investors Have their Sights on Germany’s Secondary Cities
Germany’s second-tier cities have become extremely popular among real estate investors – and not just among domestic ones. As a survey by Union Investment among 150 institutional investors in Germany, France and the United Kingdom revealed, many French and British market players consider it by all means conceivable to spend their capital in German Class B cities.
More than half of all respondents from France and the United Kingdom, and eight out of ten investors in Germany, said as much when asked about their acquisition strategy. Conversely, the polled investors showed noticeably less interest in the second-tier cities of other European countries.1
Germany Seen as Safe Haven
This goes to show, on the one hand, that the German real estate market continues to be rated as a “safe haven,” more so than its European neighbours. On the other hand, it suggests that not just Germany’s “Big Seven” metropolises but even its secondary cities qualify as investment destinations for most institutional players.
The Union Investment survey also returned another finding that residential real estate investors in particular will find interesting: More than half (51 percent) of all the European investors interviewed assume that the transaction volume in the residential segment will keep going up in 2020. By contrast, the number of investors predicting a growing transaction volume was noticeably lower for the segments hospitality (39 percent), office (29 percent) and retail (7 percent).
Transaction Volume in Second-Tier Cities Expected to Increase
There is therefore a realistic chance that yet more capital will be pumped into residential real estate in German Class B cities in 2020. Even last year, the real estate markets in second-tier cities registered an upward trend in transaction volumes. JLL, for one, reported an increase by 17 percent year on year in 2019, albeit for properties across asset classes. For 2020, JLL forecasts at least a “moderate increase in investment volumes in Class B cities.”2
The growing interest in real estate outside the “Big Seven” metropolises is explained, according to JLL, by short supply and high selling prices in these seven Class A cities. Due to its polycentric structure, investments in Germany’s innovative and “talent-rich” cities away from the metropolises offer more diversification potential than comparable cities in other countries do. This assessment evidently overlaps with the initially quoted survey findings according to which institutional investors consider tier-two locations in Germany more eligible for commitments than analogous cities elsewhere because of the decentralised economic structure of Germany.